SEC Flash Report - February 2017

February 2017

Dodd-Frank SEC Rules - One Nullified and Others Scrutinized 

On February 14, President Trump signed a resolution passed by Congress which nullifies the SEC’s resource extraction issuer disclosure rule (Rule 13q-1).  Rule 13q-1 would have required resource extraction issuers to disclose information about certain payments made to United States and foreign governments for the commercial development of oil, natural gas, and minerals.  Originally adopted in 2012 pursuant to a Dodd-Frank Act statutory mandate, the rule was vacated after being challenged in a federal court.  In response to the federal court’s decision, the SEC rewrote the rule and adopted it in June 2016.  However, as a result of the nullification, Rule 13q-1 will not go into effect. 

In addition, Acting SEC Chairman Michael Piwowar recently issued two public statements on the following Dodd-Frank rules previously adopted by the SEC:  
  • Pay ratio rule – Adopted in August 2015, this rule will require issuers to disclose the median annual total compensation of all employees except the chief executive officer, the annual total compensation of the CEO, and the ratio of those two amounts in any annual report, proxy or registration statement that requires disclosure of executive compensation pursuant to Item 402 of Regulation S-K.   The rule is effective for fiscal years beginning on or after January 1, 2017. 

Chairman Piwowar’s statement expresses his understanding that issuers have encountered “unanticipated compliance difficulties” as they prepare to adopt the rule.  The intent of his statement is to solicit feedback in order to understand these difficulties and whether additional guidance or relief is warranted.  A link to the comment page is provided within Chairman Piwowar’s statement. 
  • Conflict minerals rule – Adopted in August 2012, Rule 13p-1 requires companies to determine and publicly disclose on an annual basis whether their products were manufactured using certain minerals, designated as “conflict minerals,” that originated in the Democratic Republic of the Congo or adjoining countries.  If so, an issuer is required to provide a report describing the measures taken to determine whether the minerals financed or benefited armed groups in the region and its conclusions.  Rule 13p-1 was also met with controversy.  In April 2014, a U.S. Court of Appeals issued a ruling which determined that a portion of the conflict minerals rule infringed upon a company’s constitutional right of free speech. In light of the ruling, the SEC staff issued a statement on how a company should comply with the aspects of the conflict minerals rule which were not impacted by the Court’s decision.  

Chairman Piwowar’s statement indicates that he directed the staff to reconsider whether the 2014 guidance is still appropriate and whether any additional relief is necessary.  He is also soliciting feedback from interested persons on all aspects of the rule and guidance.  A link to the comment page is provided within Chairman Piwowar’s statement.   

Despite these statements, these rules are currently still in effect. 

Please contact Jeff Lenz or Paula Hamric if you have any questions.