April 30, 2014
(Editor’s Note: This post is an excerpt from an article appearing in Practitioner Insights on WestlawNext)
SEC Commissioners Daniel M. Gallagher and Michael S. Piwowar issued a joint statement on April 28 announcing their belief that the implementation of the SEC’s conflict minerals rules should be delayed while their constitutionality is determined by federal courts. On April 14, the U.S. Court of Appeals for the D.C. Circuit declared that certain provisions of the conflict minerals rules violate free speech rights under the First Amendment.
Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 compels the SEC to promulgate rules for issuers whose products contain metals that were mined in certain conflict areas of the Democratic Republic of Congo (DRC).
However, the U.S. Appeals Court declared unconstitutional the requirement that issuers describe certain “conflict minerals” used in the manufacturing of their products as “not DRC conflict free.” The court reasoned that requiring this disclosure is equivalent to “compelling an issuer to confess blood on his hands” and “interferes with the exercise of free speech under the First Amendment.”
Although the appeals court did not deem any other provision of the regulations to be unconstitutional in its April 18 opinion, the possibility looms as the case is remanded to the district court. Since that process could take months and the first Form SD reports are due on May 31, the SEC was expected to release additional guidance on how issuers should comply with the rule.