This week the U.S. Court of Appeals for the D.C. Circuit held
that the Security and Exchange Commission's ("SEC")
final rule concerning "conflict mineral" disclosures is
unconstitutional. Nat'l Assoc. of Mfrs v. SEC, No.
13-5252 (D.C. Cir., decided April 14, 2014). The SEC rule
requires registrants to disclose annually on a Form SD whether
their products incorporate conflict minerals (i.e., tin, tungsten,
tantalum, and gold, mined in war-torn Central Africa) or whether
their products are "DRC Conflict Free."
The court ruled that, by requiring companies to report whether
their products are free of conflict minerals, the SEC rule
improperly compelled commercial speech in violation of the First
Amendment. Accordingly, the court invalidated both the
SEC's final rule and the underlying statutory provision in the
2010 Dodd-Frank Wall Street Reform and Consumer Protection Act
("Dodd-Frank"), but only "to the extent the statute
and rule require regulated entities to report to the Commission and
to state on their website that any of their products have 'not
been found to be "DRC conflict free."'
The court reasoned that "the label 'conflict free' is
a metaphor that conveys moral responsibility for the Congo
war" and, "[b]y compelling an issuer to confess blood on
its hands, the statute interferes with that exercise of the freedom
of speech under the First Amendment."
With the June 2, 2014 deadline fast approaching for filing a
Form SD, many manufacturers and other parties impacted by the
SEC's final rule are eager to know whether the D.C.
Circuit's decision relieves them of their upcoming filing
requirement. Unfortunately, the immediate impact of the decision is
not entirely clear.
The court remanded the case to the District Court for a review
of whether the SEC's rulemaking, or language in the Dodd-Frank
statute itself, is at the root of the free speech conflict.
In the interim, it is possible that the SEC will provide guidance
indicating that issuers should file their Form SD but, per the D.C.
Court's decision, issuers may omit the declaration of whether
their products are "DRC conflict free." It is also
possible that the plaintiffs will move in District Court to stay
implementation of the rule, pending the court's decision on
remand. In the long term, the SEC may appeal the D.C.
Circuit's decision, putting its validity back into play once
more, or it may amend its final rule in an effort to satisfy the
constitutional standards articulated by the D.C. Circuit this
This article is presented for informational purposes only
and is not intended to constitute legal advice.
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