SEC Stock Buyback Rules Overturned In Fifth Circuit

In May, the Securities & Exchange Commission (SEC) adopted a new rule intended to force more public disclosure on companies with regard to stock buybacks. Stock buybacks happen when a company purchases some of its own shares, and they are done for multiple reasons – to boost the stock’s value, to prevent a takeover, or to reduce the number of outstanding shares. In December 2023, however, the Fifth Circuit Court of Appeals invalidated the rule (at least temporarily), stating that the agency failed to meet court requirements.

Intent Was Transparency

The rule, as passed in May 2023, would have required greater transparency from companies with regard to stock buybacks, mandating “quantitative disclosure of daily repurchases,” imposing a higher filing burden and greater disclosure of the methods behind the buybacks. The intent was to “lessen some of the information asymmetries” between issuers and investors.

The rule was challenged by the U.S. Chamber of Commerce, who had argued that its provisions were overbroad and too burdensome on foreign private investors and smaller companies, who did not receive any kind of exemption and were not, in the case of foreign companies, permitted to defer to home country requirements. They also cited First Amendment concerns, worrying that the rule was intended to chill protected speech.

Overturned On Technicalities

The Fifth Circuit did not, in their ruling, even touch the merits of the SEC’s rule; rather, it cited the commission’s alleged violation of the Administrative Procedure Act and argued that it had failed to perform a proper cost-benefit analysis before the rule’s publication. The SEC had asked for an extension in November, but the court denied the request and invalidated the rule based on these technical violations rather than assessing the workability of the rule itself.

The SEC intends to modify its rule and try again, according to a spokesperson. Stocks are one of the most commonly traded types of securities, and one of the SEC’s main goals is to “maintain fair, orderly, and efficient markets.” Buybacks being permitted to go on without proper degrees of disclosure would arguably fly in the face of that mission, so it is unsurprising that the Commission intends to continue to try and regulate this practice.

Contact A Seminole, FL Securities Law Attorney

While the ultimate outcome of this situation remains to be seen, anyone who invests in securities should be aware of their rights and obligations. A Florida securities law attorney from the Hunt Law Group can help answer your questions about these issues. Call our office today at (727) 471-0444 to schedule a consultation.

Source:

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