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D.C. District Court Vacates SEC’s Resource Extraction Issuer Rule

On July 2, the US District Court for the District of Columbia vacated the resource extraction issuer disclosure rule that the Securities and Exchange Commission adopted last year in accordance with mandates under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Rule 13q-1 under Securities Exchange Act of 1934, as amended, the resource extraction issuer rule, would have required an issuer engaged in the commercial development of natural gas, minerals and oil resources to publicly disclose, on new “Form SD,” detailed information about payments made by the issuer, a subsidiary of the issuer or another entity under the issuer’s control to the US federal government or foreign governments in connection with the development of such resources. The Court vacated and remanded the rules to the SEC, which may either appeal the Court’s ruling or promulgate a new rule in accordance with the Court’s ruling.

The Court cited two “substantial errors” by the SEC in making its ruling. First, the Court ruled as erroneous the SEC’s interpretation that Section 13(q) of the Securities Exchange Act of 1934, as amended, required public disclosure of an issuer’s resource extraction payments. Instead, the Court stated that Section 13(q) provided the SEC with discretion as to whether resource extraction payments should be made public, noting that the language of Section 13(q) only required public disclosure of a compilation of such payments “to the extent practicable.” The Court also indicated that the SEC may determine to revise the resource extraction issuer disclosure rules “in light of the flexibility it did not know that it had.”

Second, the Court ruled that the SEC’s failure to create an exemption from the rule relating to countries that prohibit payment disclosure was arbitrary and capricious. Citing the SEC’s statutory authority to make exemptions from certain Exchange Act provisions, the Court noted that the SEC did not properly consider the competitive burdens that the rule would have on issuers operating in countries where disclosure of resource extraction payments is prohibited. The lack of such an exemption, at the SEC’s admission, “drastically increased the Rule’s burden on competition and cost to investors.” By failing to adequately take into account these costs, the Court ruled that the SEC “abdicated its statutory responsibility to investors.”

 Click here for the District Court’s opinion.

©2017 Katten Muchin Rosenman LLP


About this Author

Mark D. Wood, corporate securities lawyer Katten Muchin Chicago Law firm

Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

Mark also represents clients in complex corporate transactions, including tender offers, mergers, acquisitions, dispositions, going-private transactions, private equity investments, joint ventures and...

David S. Kravitz, Corporate Legal Specialist, Katten Muchin Law firm

David S. Kravitz concentrates his practice on a broad range of transactional, securities and general corporate matters. He regularly advises private equity sponsors, public and privately held companies and their boards of directors and committees of independent directors in a variety of transactions such as mergers and acquisitions, corporate financings, joint ventures, unsolicited takeovers, proxy contests and other contested transactions, including auctions and leveraged buyouts. His experience spans a broad range of asset classes and industries, including pharmaceutical, fashion, Great Lakes shipping, technology, energy, gaming, restaurants and insurance, among others.

David also serves as general counsel for a number of his public and private clients, providing advice on a wide range of matters including growth initiatives, capital formation, securities and regulatory matters. For his public company clients, he also regularly advises on corporate governance issues and Securities and Exchange Commission reporting and disclosure.