On October 10, various trade associations, including the American Petroleum Institute, the Independent Petroleum Association of America and the National Foreign Trade Council, as well as the Chamber of Commerce of the United States of America, sued the Securities and Exchange Commission in the US District Court for the District of Columbia to block the SEC’s recently adopted resource extraction disclosure rules. These rules require public companies that are engaged in the development of oil, natural gas or minerals to publicly disclose certain payments of more than $100,000 made to any foreign government or the US federal government for each “project” related to extractive industries. The SEC adopted these rules on August 22 as required by Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as reported in the August 24, 2012, edition of Corporate and Financial Weekly Digest.
The plaintiffs claim that the resource extraction disclosure rules violate the Administrative Procedure Act, the Securities Exchange Act of 1934, and the prohibition on compelled speech embodied in the First Amendment to the US Constitution. The plaintiffs also claim that the SEC acted arbitrarily and capriciously in, among other things, not permitting companies to submit payment information confidentially to the SEC (which could later be published by the SEC in an aggregate or compilation form) and insufficiently evaluating the costs and benefits of the rules. They argue that Section 1504 of the Dodd-Frank Act does not mandate public disclosure of such payments by registrants—it only requires that the SEC make publicly available a “compilation” of the information required to be submitted by registrants. They also criticized the SEC’s failure to define “project.” The plaintiffs are seeking a declaration that the rules are null, void and without force and effect.
In their complaint, the plaintiffs rely in part on SEC Commissioner Daniel M. Gallagher’s dissent from adoption of the rules. Commissioner Gallagher criticized the SEC for failing to adequately tailor the rules to avoid adverse effects on efficiency, competition and capital formation. He also noted that the rules as adopted would be imposing “significant costs on issuers – and thereby shareholders.” Click here to view Commissioner Gallagher’s dissent from adoption of the rules.
The plaintiff’s filing of the complaint does not immediately stay the rules, which require applicable companies to comply with the new rules for fiscal years ending after September 30, 2013. If the SEC does not decide to voluntarily stay the rules pending resolution of the lawsuit, the plaintiffs could petition the court to stay the rules.
Click here to view the complaint filed by the plaintiffs.