SEC Puts Issuer Repurchase Rule on Hold
Commentary by Steven Lofchie
The SEC postponed the effective date of the "Share Repurchase Disclosure Modernization Rule," which requires issuers to provide additional information on the purpose of their repurchase programs.
The SEC announced a stay of the "Repurchase Rule" in order to address Administrative Procedure Act deficiencies found by the Fifth Circuit Court of Appeals. In the October 31, 2023 Opinion, the Court remanded the matter to the Commission "to correct the defects" the Court identified in the Repurchase Rule by November 30, 2023.
In the Opinion, the Court criticized the SEC for having failed to "consider[]" comments that it received on the rule proposal, and attempting to justify this failure with arguments that are "demonstrably false," "inadequately substantiated" and "internally contradictory." The Court was further critical of the requirements set out in the rule, describing them as "clear as mud."
Commentary
The Fifth Circuit Opinion was a pretty blunt shut down of the SEC's rulemaking process, essentially suggesting that it had manufactured a solution to a problem that it could not demonstrate existed. It is notable that two of the SEC's Commissioners (Uyeda and Peirce) dissented from the adoption of the Repurchase Rule. Against that background, it is not clear whether the SEC will want to make another run at this rulemaking,
The SEC has now had a fairly bad run of defeats in which the courts have been quite critical of the agency. The judicial criticism largely echoes comments from dissenting SEC Commissioners who have consistently taken issue with the process by which the SEC majority advances its rulemakings. Given both the losses in court and the internal criticisms, the SEC may want to conduct a self-examination to consider whether the fault lies not in the judiciary, but in the agency.
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