It's Back to the Drawing Board for the SEC on Resource Extraction Disclosure Rules

By Cydney Posner

The Wall Street Journal is reporting that the SEC has declined to appeal the federal court decision vacating the SEC's resource extraction disclosure rules promulgated as required under Dodd-Frank.  (See my email of 7/2/13 for a discussion of the court decision.) The resource extraction rule was adopted at the same time as the conflict minerals rule, but did not share the same fate in the courts. The rule required resource extraction issuers to disclose, on new Form SD, payments to foreign governments in connection with oil, gas and mineral rights. In litigation brought by the American Petroleum Institute and the Chamber of Commerce, the U.S. District Court tossed the SEC's rules, contending, among other things, that the SEC misread the statute. According to the WSJ report, the SEC had until Tuesday to decide whether to appeal the ruling. According to the article, the SEC spokesman commented that the "'court remanded the matter for further SEC proceedings, which the Commission will undertake informed by the court's decision.'"

The SEC's decision not to appeal was made notwithstanding urging by a large group of investors to defend rules. On August 15, as reported by the WSJ, a group of 44 investors representing about $5.6 trillion in assets sent a letter to the SEC expressing their concern that extractives disclosure requirements could be rolled back.  According to one of the signatories, "[i]nvestors depend on the SEC's deliberate consideration of disclosure requirements that illuminate potential risk, maintain fair, orderly, and efficient markets, and facilitate capital formation….We commend the Commission on issuing rules for the implementation of Section 1504 that reflect thorough contemplation of these factors and urge it to defend the rules so investors may benefit from these public disclosures." Other signatories cautioned that the "less mystery there is behind these resource deals, the fewer unpleasant surprises we can expect." Other activist investors "called for the SEC to keep the rules just as strong, but to rewrite them under the conditions required by the court….'The SEC should stand firm against companies that want to continue making payments in secret and reinstate the rule…. It now has an opportunity to re-write the rule with its original elements intact, and provide a stronger justification for its decisions.'"

The article reports that the American Petroleum Institute observed that "the rule ‘would have jeopardized transparency efforts already underway,' and that it looks forward to working with the SEC to rewrite the rule ‘in a way that recognizes these existing efforts' without harming U.S. firms."

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