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From Securities Regulation Daily, May 15, 2014

DC Circuit panel denies industry request for stay of SEC conflict minerals regulations

By Jim Hamilton, J.D., LL.M

The DC Circuit panel that earlier invalidated one piece of disclosure in the SEC’s regulations implementing the conflict minerals provisions of the Dodd-Frank Act has denied a request by the industry coalition challenging the conflict minerals regulations for an emergency stay of the regulations in their entirety. The panel denied the motion for a stay in a one sentence per curiam order. The panel is composed of Circuit Judge Srinivasan, and Senior Circuit Judges Sentelle and Randolph (National Association of Manufacturers v. SEC, May 14, 2014).

Last month the appeals panel upheld the bulk of the requirements under the conflict minerals regulations, but found that that the requirement that issuers report to the SEC and state on their website that any of their products have not been found to be DRC conflict free was compelled speech in violation of the First Amendment. The SEC, in response to the court’s opinion, issued an order staying, pending the completion of judicial review, the effective date for compliance with those portions of the regulations subject to the court’s constitutional holding. The SEC staff also issued a statement providing guidance to issuers as to how to comply with the regulations during this interim period

The industry coalition, composed of the National Association of Manufacturers, the Chamber of Commerce and the Business Roundtable, asked the DC Circuit for a stay of the regulations in their entirety, which the SEC opposed and the panel has now rejected.

In a brief filed last Friday, the SEC argued that, in requesting that the court stay the entirety of the regulations, the industry groups made no argument that the relief provided by the Commission was insufficient to prevent the risk of First Amendment harm. Nor did they assert that the court’s reasoning with respect to the First Amendment implicated those portions of the conflict minerals regulations that remain in effect.

In providing a limited stay, the Commission said that it acted consistently with the court’s judgment by directing issuers to staff guidance outlining how the regulations are to be given effect without the judicially invalidated portion of the disclosure.

The SEC does not believe that this one piece of disclosure was more pivotal than the others. Indeed, the Commission’s explicit provision that the rule is severable indicates otherwise. Similarly, the SEC argued that Congress did not believe that this one piece of disclosure was so indispensable that the regulations could not be implemented in its absence.

In their brief, the industry argued that stripped of the core disclosure requirement invalidated by the court, the regulations no longer created incentives or enhanced transparency, thereby undermining Congress’ very objectives in enacting the statute.

The case is No. 13-5252.

Attorneys: Jonathan Fredrick Cohn (Sidley Austin LLP) for National Association of Manufacturers, Chamber of Commerce of the USA and Business Roundtable. Tracey Anne Hardin for SEC.

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