Today, two SEC Commissioners issued a joint statement indicating that they believe that the effectiveness of the conflict minerals rule should be stayed pending the final outcome of the legal challenge because they believe that the district court could conclude that the entire conflict minerals rule is invalid.
In part, they said:
- “The First Amendment concerns permeate all the required disclosures, not just the listing of products that have not been determined to be DRC conflict free.” They explained that a description of a company’s due diligence procedures would imply that it may have “blood on its hands” (quoting language from the Court of Appeals decision).
- The due diligence process that might be required to be included in a company’s disclosure if the rule is implemented is “not severable from the unconstitutional scarlet letter of not DRC conflict free.”
- “Marching ahead with some portion of the rule that might ultimately be invalidated is a waste of the Commission’s time and resources…and a waste of vast sums of shareholder money. “
Then later in the day, there were reports that the SEC was planning to implement the portions of the conflict minerals rule that were not struck down by the Court of Appeals decision on April 14th. It is unclear whether that implementation would require descriptions of products as “DRC conflict undeterminable,” despite the fact that such a label indirectly states what was found to be a violation of the First Amendment — that the reporting company was not able to determine that the product is DRC conflict free.
The sequence and timing of the joint statement and the reports about the SEC’s expected action are interesting to say the least. Observers expect that the SEC will announce its decision soon.
Stay tuned. And in the meantime, we suggest that you continue your inquiries, due diligence and drafting of disclosures so that you are ready to respond quickly as this develops further.