Fifth Circuit Vacates SEC’s Share Repurchase Rule
SEC was unable to revise rule within 30 days, as directed by the court
On December 19, 2023, the U.S. Fifth Circuit Court of Appeals issued an order vacating the share repurchase disclosure rule adopted by the U.S. Securities and Exchange Commission (the “SEC”), finding that the SEC had acted arbitrarily and capriciously in violation of the Administrative Procedure Act (the “APA”).
Under the rule, SEC-registered corporate issuers are required to file quarterly reports and related annual disclosures setting out more detailed disclosure of share repurchases, including the rationale for share repurchases. We detailed these requirements in our earlier client briefing.
The U.S. Chamber of Commerce and two other petitioners challenged the rule, arguing that: (1) requiring issuers to disclose their rationales for share repurchases violates the First Amendment; (2) the SEC acted arbitrarily and capriciously in adopting the rule; and (3) the SEC did not provide the public with a meaningful opportunity to comment. In its decision, the court rejected the first and third arguments, but held that the SEC acted arbitrarily and capriciously, in violation of the APA, when it failed to respond to petitioners’ comments and failed to conduct a proper cost-benefit analysis.
The court gave the SEC 30 days to “correct the defects” in the rule, but the SEC was unable to do so, and the court refused to extend the deadline.
The SEC has not indicated whether it will be reproposing the rule. No action regarding the rule is listed on the SEC’s recently released regulatory agenda.
We will continue to monitor developments in this area and encourage you to contact us if you have any questions.
