Securities Regulation Daily Wrap Up, PUBLIC COMPANY REPORTING AND DISCLOSURE—Democrats urge SEC to work on political spending disclosure rule, (Dec 23, 2015)

By Lene Powell, J.D.

A group of over 90 legislators told the SEC that the agency is free to work on a rule to require disclosure of corporate political spending, despite a provision in the recently enacted omnibus spending bill appearing to prohibit this. Although the statute prevents the SEC from using 2016 appropriated funds to issue a final rule on the topic, the legislators assured the agency that the statute does not prohibit it from developing such a rule. In a letter, the group of 28 senators and 66 representatives led by Senate Banking Committee member Sen. Bob Menendez (D- NJ) said they expect the SEC to move forward in preparing a rule, and will ask for periodic updates.

Disclosure of political spending. In 2011, a group of law professors submitted a petition asking the SEC to issue rules requiring public companies to disclose their spending on politics. Citing Citizens United, the petitioners said this would help shareholders monitor a corporation’s political speech, in turn allowing shareholders to discipline company leaders who use corporate resources for speech inconsistent with shareholder interests. The petition took off, attracting a record-breaking 1.2 million comments. The petition was supported this year by former SEC chairs William Donaldson and Arthur Leavitt as well as many Democrat senators.

The SEC did include the topic in its 2012 regulatory agenda, but removed it the following year. Chair Mary Jo White explained in oversight hearings in 2014 that Dodd-Frank and JOBS Act rules took priority over non-mandated rulemakings. The agency’s most recent agenda does not include the topic.

Prohibition on use of funds. Title VII, Section 707 of the Consolidated Appropriations Act, 2016, enacted December 18, 2015, prohibits the SEC from using any funds appropriated by the act to “finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.”

Spotting a loophole, the lawmakers said they believe the language does not prevent the SEC from “discussing, planning, investigating, or developing plans or possible proposals for a rule.” Given the immense value of such a rule to investors, they said, this should be a top priority for the Commission. They expect the SEC to hold a public roundtable and take other actions to develop a proposal.

In an opinion posted on the website of Public Citizen, a public interest group, Harvard Law Professor John Coates backed the legislators’ assertion that the statute does not prohibit the SEC from developing a rule in this area.

“Had the Act been intended to restrict the SEC from using funds made available by the Act to engage in rule proposals or steps preliminary to rule proposals, it would not have used the phrase ‘finalize, issue or implement,’ but would have used the phrase ‘plan, propose, finalize, issue or implement’ or similarly broad language,” Coates wrote.

Just because the SEC appears to have room to act, however, doesn’t mean it will. Given that the petition has been pending for over four years and there is no proposal in the rulemaking agenda, it appears the petition may face other stumbling blocks.

LegislativeActivity: ExchangesMarketRegulation PublicCompanyReportingDisclosure