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Federal appeals court vacates SEC buyback disclosure rule

On Behalf of | Jan 9, 2024 | Securities and Compliance

A federal appeals court has vacated the Securities and Exchange Commission’s new rule involving disclosure on stock buybacks, according to a Reuters report.

Under the rule finalized by the SEC last May, companies would be required to disclose daily stock buyback information either quarterly or semi-annually. The required disclosures included the number of shares repurchased that day and the average price paid, among other things. Companies also had to include a checkbox indicating whether certain officers and directors traded in the relevant securities in the four business days before or after the announcement of the repurchase plan or program.

The U.S. Chamber of Commerce went to court to block the rule, joined by the Texas Association of Business and the Longview Chamber of Commerce.  Their lawsuit alleged that the SEC’s action discouraged companies from using stock buybacks and also violated the Administrative Procedure Act (APA) and the U.S. Constitution.

Last month, the 5th U.S. Circuit Court of Appeals in New Orleans granted their motion to vacate the rule after previously finding that the SEC had “acted arbitrarily and capriciously” in violation of the APA by failing to conduct a proper cost-benefit analysis when enacting the rule. The SEC was given 30 days to correct what the court called “defects” in the rule, but the commission did not file a revision.

“That thirty-day period has come and gone,” Judge Jerry E. Smith wrote in the decision. “The SEC claims to have ‘worked diligently to ascertain the steps necessary to comply with the court’s remand order.’ Yet the agency has nothing to show for its efforts. It returns to this court empty-handed, admitting that it ‘was not able to “correct the defects in the rule” within 30 days.’ The rule remains no less flawed — and no less unlawful — than it was on October 31, 2023.”

Responding to the appeals court decision, an SEC spokesperson said, “While we are disappointed in the court’s ruling, it’s important to note that the court rejected petitioners’ First Amendment challenge to the rule and petitioners’ challenge to the rule’s comment period. In terms of next steps related to share repurchase disclosures, any staff recommendation will be presented to the commission.”

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