Public availability of SEC comment letters and company responses
Below, you see the full briefing on this topic elaborated by Linklaters, law firm which specialises in advising the world's leading companies, financial institutions and governments on their most challenging transactions and assignments, which works with co-operation agreement with the law firm Goulart Penteado, Iervolino e Lefosse – Advogados.
___________
U.S. Securities Law Briefing
The U.S. Securities and Exchange Commission (“SEC”) announced on June 24, 2004 that it would publicly release SEC comment letters and company responses relating to disclosure filings reviewed by the Division of Corporate Finance and the Division of Investment Management. This increased public awareness of the to-and-fro between companies and the SEC during the registration and annual report process may present some sensitivities for companies. While tools remain to protect confidential information, companies should approach disclosure correspondence with the SEC with renewed caution to ensure sensitive information is not made public inappropriately or in an untimely manner.
Companies seeking to register a class of securities under the U.S. Securities Act of 1933 (the “Securities Act”) or with a class of securities registered under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) are required to make disclosure filings with the SEC. For example, a non-U.S. issuer conducting a U.S.-registered initial public offering (“IPO”) would file a Form F-1 registration statement with the SEC and, on an ongoing basis, would file annual reports on Form 20-F with the SEC. While the SEC formally disclaims that it has “passed upon the accuracy or adequacy of the disclosures” in a registration statement or annual report, these disclosure filings are in many cases selected for review by the staff (almost always in the case of an initial public offering).1 As part of that review process, the SEC staff provides issuers with comments on the disclosure information and financial statements and schedules that it believes may not be in compliance with SEC rules and regulations or may otherwise be unclear, inaccurate or incomplete. An issuer will generally address the comments by the SEC in reply correspondence and will often amend or re-file the disclosure document. Staff review of a registration statement or annual report may involve multiple rounds of comments from the staff and responses from the issuer.
While filed amendments to registration statements or annual reports are available to the public, the SEC has not until now routinely made public its staff comment letters and issuer responses. Rather, comment letters and the related correspondence are currently only released in response to a formal Freedom of Information Act (“FOIA”) request and then only after the staff review is complete.
Release of comment letters and responses
For the past six months, commercial securities database providers have with increasing frequency been requesting comment letters and issuer responses from the SEC via the FOIA process. Public access to these comment letters has thus increased, albeit only to subscribers to the commercial databases and only after the SEC review process has completed. In order to extend access to the comment letters and company responses to the public at large, the SEC has now announced that access to comment letters and responses to comment letters will be made available routinely through the SEC’s electronic data base EDGAR. Public access to comment letters and responses to comment letters will no longer require a FOIA request.
Timing
Comment letters and related correspondence will be released with respect to filings made after August 1, 2004 that are selected for review. The SEC will announce a specific date after which these documents will become publicly available. Correspondence will be released not less than 45 days after the staff has completed its review of a filing.
Implications
Companies may, in light of this new SEC policy, wish to consider more carefully how they respond to SEC staff comments, including requests for supplemental information (as explained below), in order to minimize the risk that sensitive or confidential information that is intended to remain nonpublic not become publicly available or to maintain control of the time when such information is released to the public generally. By submitting to the SEC a greater proportion of the response as supplemental information, rather than incorporating the data into a response letter, companies may be able to keep more information confidential. To the extent practicable, issuers can also preserve the confidentiality of information by discussing information orally with the staff rather than in writing. There are, of course, specific steps issuers can take to preserve confidentiality of sensitive information, and Linklaters will be pleased to assist issuer and banking clients in that regard.
Confidential treatment requests
Issuers can request confidential treatment for portions of a written response to a staff comment letter under the SEC’s Rule 83. That rule requires the issuer to submit its response letter using two separate letters. One letter is a response to the comment letter with the confidential information omitted and marked to indicate omission (the redacted version), and a separate letter is submitted that includes the confidential information marked to indicate that confidential treatment has been requested. Only the redacted letter would be released where a Rule 83 request has been received, until and unless a FOIA proceeding (including relevant appeals) has concluded that the particular material is not entitled to be withheld from public availability. Note that the request for confidential treatment under Rule 83 is not assured of success; the basis for confidential treatment under FOIA will have to be substantiated2 upon challenge and upheld in a FOIA proceeding.
During these past six months the SEC staff has followed a practice, and the new announcement states that the staff will continue the practice, of questioning any request for confidential treatment that ”is on its face overly broad”, e.g., a request applicable to an entire response letter rather than to specified information.
Supplemental information submitted at staff request
Issuers called upon by the SEC staff, in comment letters or otherwise, to furnish information ”supplementally”, i.e., in addition to or to explain or verify disclosures or financial information included in a registration statement or annual report3, are not required to “file” that information or to make it part of the registration statement or annual report. Issuers may, and should, request return of such supplemental information, which will be returned by the staff provided that the request is made at the time the information is furnished to the staff, the information is furnished to the staff in paper form and is not “filed in electronic format”, and no investor protection or FOIA issues weigh against return.
Non-US issuers making first-time filings
There is a particular accommodation to the SEC review process that is extended to non-U.S. issuers. Non-U.S. issuers submitting a registration statement to the SEC for the first time (whether in connection with an IPO or to enter the Exchange Act reporting system) are given the opportunity for an initial, confidential submission. We understand that staff comments received and issuer responses to staff comments in connection with this initial submission also remain confidential but only until the first public filing of the registration statement.
“Tandy” representation
The staff will also be asking all issuers to represent in writing that they will not use the SEC’s comment process as a defense in any securities-related litigation against them. This is a request (in fact, a demand as a condition of effectiveness of a registration statement) that the SEC staff has historically made of issuers as to which the pending effectiveness of a registration statement coincides with an ongoing Enforcement Division investigation involving the issuer. (The name “Tandy letter” derives from the first company to which such a request was addressed.) In view of the prospective application of the Tandy request to all issuers, the SEC concluded its announcement by stating that its request and the issuers response representation “should not be construed as confirming that there is or is not, in fact, an inquiry or investigation” currently in process that involves the issuer.
___________
1 Section 408 of the Sarbanes-Oxley Act of 2002 now requires the SEC to review issuers’ filings at least every three years.
2 Rule 83 contemplates that the issuer/requester will advance specific statutory or regulatory provisions that govern the treatment of the particular information, the adverse consequences to the issuer that would result from disclosure, the measures taken by the issuer to protect the confidentiality of the information before and after submission to the SEC, the ease or difficulty of a competitor’s obtaining the information, etc.
3 Rule 418 under the Securities Act gives as examples of such information (1) memoranda prepared for external use in connection with a proposed public offering, (2) management analyses and feasibility studies prepared in connection with a business combination, (3) reports relating to broad aspects of the business of the issuer, prepared within the prior twelve months, (4) memoranda that were material to the issuer’s decision to develop a material new product or to do business in a new industry segment, among others. Rule 12b-4 under the Exchange Act omits examples.
__________
________