On Friday, the U.S. Chamber of Commerce announced that, together with the Texas Association of Business and the Longview Chamber of Commerce, it had filed litigation in the Fifth Circuit against the SEC to prevent implementation of the SEC’s new rulemaking about stock buybacks (see this PubCo post). According to the press release, the lawsuit challenges the SEC’s rule under the Administrative Procedure Act and the Constitution: the SEC’s “mandatory disclosure requirements not only risk the public airing of important managerial decisions but also compel speech in violation of the First Amendment.” The Chamber has been openly hinting at this course of action (see this press release), so it’s not much of a surprise. The initial filing is in the form of a petition, simply asking the court to review the order of the SEC approving the final rule, Share Repurchase Disclosure Modernization, entered on May 3, 2023.
The final share repurchase rules require companies reporting on domestic forms to file quarterly, in tabular format, exhibits to their Forms 10-Q and 10-K disclosing, for the period covered by the report (or the fourth quarter, for a Form 10-K), the total purchases made each day (and specified other information) by or on behalf of the company or any “affiliated purchaser,” as defined in Rule 10b-18, of any class of equity securities registered under Section 12. Similar rules apply to foreign private issuers, which will be required to provide disclosure of daily repurchase data on new Form F-SR, to be filed quarterly. The final amendments require the inclusion of a checkbox indicating whether any Section 16 directors and officers (or, for FPIs, directors or senior management that would be identified pursuant to Item 1 of Form 20-F), purchased or sold shares that were the subject of a publicly announced repurchase program within four business days before or after the company’s announcement of a share repurchase plan or an increase in the size of an existing plan. Under new Item 408(d), each company will be required to disclose, in its Forms 10-Q and 10K, whether, during its most recently completed fiscal quarter (the fourth quarter for a 10-K), the company adopted or terminated a Rule 10b5-1 plan and a description of the material terms of the plan, other than price. Most calendar-year companies will be required to start reporting for the first quarter that begins on or after October 1, 2023. (See this PubCo post.)
According to the Chamber’s Chief Policy Officer,
“[s]tock buybacks play an important role in the functioning of healthy and efficient capital markets….The SEC’s stock buyback rule doesn’t protect investors. Instead, it puts the thumb on the scale to discourage buybacks despite the fact that the repurchasing of shares improves returns for savers and investors across the economy. Buybacks efficiently distribute capital to where it is most likely to result in the investments that grow businesses and add value for shareholders and Main Street investors. The Chamber’s lawsuit seeks to protect returns for investors as well as the ability of companies to make decisions free from government micromanagement.”
As reported by Reuters, an SEC spokesperson said the SEC “undertakes rulemaking in line with its authorities, adding: ‘We will vigorously defend the challenged rule in court.’” An article in the WSJ quoted SEC Chair Gary Gensler as telling “reporters he’s confident that the approved rule ‘is grounded in the authorities that we have and have used over the decades.’”