Conflict Minerals Disclosure Due Date Approaching; While SEC Staff Issues New Guidance, Court’s Decision Creates Some Uncertainty: D.C. Circuit Holds That Portion of Conflict Minerals Disclosure Rule Violates the First Amendment; Absent Further Developments, Issuers Should Continue to Prepare to File Disclosures by Monday, June 2

Sullivan & Cromwell LLP - April 17, 2014

The deadline – May 31, 2014, extended to June 2 because May 31 falls on a Saturday – for conflict minerals disclosures responsive to the SEC’s rule under Section 13(p) of the Securities Exchange Act, is quickly approaching.

This week, the Court of Appeals for the District of Columbia Circuit issued its opinion in a case challenging various aspects of the rule.  The court invalidated on First Amendment grounds the requirement that issuers report to the SEC and state on their websites that certain of their products have “not been found to be ‘DRC conflict free.’”  The D.C. Circuit, however, upheld the SEC’s rule against all of the other challenges before the court.  The judgment of the district court was therefore affirmed in part and reversed in part, and the case was remanded to the district court for further proceedings.
Notably, the D.C. Circuit did not vacate or stay the enforcement of the SEC’s conflict minerals disclosure rule.  The timing of further proceedings at the district court is unclear, and it is also not yet known whether the challengers will pursue further appeals or submit additional requests to the D.C. Circuit.  The SEC has reportedly stated that it is reviewing the decision. Given the uncertainty and the approaching reporting deadline, a statement from the SEC about its view of the effect of the decision is anticipated.  Until there is more certainty regarding the effect of the court’s decision on the upcoming reporting deadline and the status of the rule, issuers should continue to prepare and be ready to file any required conflict minerals disclosures by the June 2 deadline.
Prior to the issuance of the D.C. Circuit decision, on April 7, 2014, the staff of the Securities and Exchange Commission posted on its website a new set of frequently asked questions providing additional guidance on the conflict minerals disclosure rule, principally regarding the requirement to obtain an independent private sector audit of a Conflict Minerals Report.  The new guidance is described below.