Both the Securities and Exchange Commission and its staff recently responded to the April 14 ruling of a federal appeals court that the SEC’s conflict minerals rule violates the First Amendment’s prohibition against compelled speech to the extent that it requires issuers to disclose in their Conflict Minerals Report filed with the SEC and to state on their website that any of their products have “not been found to be ‘DRC conflict free.’” The decision of the U.S. Court of Appeals for the District of Columbia Circuit, which is discussed in our SEC Update available here, has raised questions about how issuers should present their disclosures on conflict minerals under Exchange Act Rule 13p-1 and Form SD.

A Commission order and guidance by the staff indicate that the Court of Appeals’ decision will not affect the obligation of public companies under Rule 13p-1 to file their initial Form SD and any related Conflict Minerals Report by the due date of June 2, 2014. The report, however, will not have to contain the disclosures that the court found would interfere with the reporting company’s exercise of free speech.

Commission order

On May 2, the SEC issued an order, available here, staying the effective date for compliance with the portions of Rule 13p-1 and Form SD that would require statements by issuers that the Court of Appeals held would violate the First Amendment. In its order, the SEC denied the motion filed by the National Association of Manufacturers, the Chamber of Commerce and the Business Roundtable for a stay of the entire conflict minerals rule. The Commission stated that a stay of the affected portions of the rule avoids the risk of First Amendment harm pending further proceedings on the case before the Court of Appeals and the U.S. district court to which the case may be returned for further action. The Commission also indicated that staying only those portions of the rule furthers the public’s interest in having issuers comply with the remainder of the rule, which was mandated by Congress in the Dodd-Frank Act and upheld by the Court of Appeals against challenges brought under the Administrative Procedure Act and the Exchange Act.

SEC staff guidance

On April 29, the staff of the SEC’s Division of Corporation Finance issued a public statement, which can be viewed here, noting that it expects public companies to file their initial Form SD and any related Conflict Minerals Report on or before the June 2 due date for conflict minerals disclosure covering the calendar-year period from January 1 through December 31, 2013. The staff stated that the initial reports should comply with the portions of the conflict minerals rule upheld by the Court of Appeals, but will not have to identify a company’s products as “DRC conflict free” or having “not been found to be ‘DRC conflict free’” or “DRC conflict undeterminable.” If a company voluntarily elects to describe any of its products as “DRC conflict free” in its Conflict Minerals Report, it must have obtained an independent private sector audit (IPSA) as required by the rule. An IPSA will not be required unless a company voluntarily elects to describe a product as “DRC conflict free” in its Conflict Minerals Report. The staff also indicated that, although a company does not have to describe its products as having “not been found to be ‘DRC conflict free’” or “DRC conflict undeterminable,” it should disclose, for those products, the facilities used to produce the conflict minerals, the country of origin of the minerals and the efforts undertaken to determine the mine or location of origin.

Public companies thus remain subject to the provisions of the conflict minerals rule that were upheld by the Court of Appeals and should continue to prepare their filings in accordance with those provisions. The staff will consider the need to provide additional guidance on the rule in advance of the approaching June 2 filing due date.