SEC Advisory Committee on Small and Emerging Companies: Specialized Disclosure Requirements

This is the second in our series of Blogs about the recommendations of the SEC Advisory Committee on Small and Emerging CompaniesIn this post, we discuss the Committee’s “Recommendation Regarding Specialized Disclosure Requirements.”

We think it significant that someone is finally starting to take a stand on what we believe to be unnecessary and unreasonably expensive additional disclosure mandates affecting smaller business.  Cynics might say the SEC does this because they don’t like Microcap companies and so by imposing these requirements and the resulting cost burden on smaller companies, they hope that these smaller companies will abandon the public markets and just go away and leave the SEC and everyone else alone.  You are free to draw your own conclusion.

The Committee noted that in recent years, legislation has been proposed or enacted that would require or requires or directs the Commission to amend its rules and forms to impose  disclosure requirements on issuers relating to matters that the Committee believes is outside of the scope of the mission of the Commission. The Committee noted that it believed that the provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) imposing obligations on reporting issuers to include in Exchange Act reports information  about conflict minerals originating in the Democratic Republic of the Congo, mine safety and payments by resource extraction issuers are examples of such legislative mandates.

The Committee believed that these disclosure requirements, particularly those relating to conflict minerals and payments by resource extraction issuers, impose a disproportionate  burden on small businesses in terms of cost of, and time spent on, compliance with such  requirements without generating information useful for investors to make an informed investment decision, and have a negative effect on capital formation.

Although the Committee acknowledged and recognized that these types of legislative mandates are responding to important and worthwhile humanitarian, social or foreign policy objectives, the Committee [and in fact we too] does not believe that confronting these objectives through disclosure provisions in the federal securities laws is an effective way of addressing the underlying  issues.

In the end, the Committee simply asked the Commission, as it deems appropriate, to share with the Committee on Banking, Housing and  Urban Affairs of the Senate and the Committee on Financial Services of the House of  Representatives this Committee’s belief that such disclosure requirements, particularly those relating to conflict minerals and payments by resource extraction issuers, are outside of the scope of the mission of the Commission, impose disproportionate costs on small businesses without generating information useful for investors to make an informed investment decision, and have a negative effect on capital formation.

A start, but not where we’d like to see this go with respect to lessening the burdens on our clients, prospective clients and all other smaller businesses.

As always, contact us if you’d like more information.

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