In May 2023, the SEC adopted new rules to “modernize” the rules regarding issuer share repurchases. As we wrote at the time, “[i]t is debatable whether these rules modernize disclosure, but they certainly do increase it, and they also demonstrate skepticism on the part of some investors and the SEC itself as to the merit and purposes of stock repurchases.”
The rules were to have become effective with the first SEC filing covering the first fiscal quarter beginning on or after October 1, 2023. For calendar-year companies, that would be the 2023 10-K. to be filed in early 2024.
A funny thing happened on the way, however. Specifically:
- On October 31 (Happy Halloween!), the US Court of Appeals for the Fifth Circuit ruled, in a suit brought by the US Chamber of Commerce and others, that the share repurchase rules were arbitrary and capricious and in violation of the Administrative Procedures Act. The Court remanded the rules to the SEC to correct the defects within 30 days (i.e., by November 30). The SEC requested an extension, but the request was denied.
- On November 22 (Happy Thanksgiving Eve!), the SEC stayed the effective date of the rules pending further action.
- On December 1, following the expiration of the 30-day remand period, the SEC advised the Court that the SEC was unable “to correct the defects in the rule” within the period.
At this point, the rules remain in limbo, but that may change. Specifically, on December 7, the Chamber of Commerce filed a motion to vacate the rule. It’s always risky to predict what any court – much less a federal Court of Appeals – might do, but given the Court’s refusal to grant the SEC an extension of the 30-day cure period, there is reason to believe that it will grant the Chamber’s motion. Should that happen, the SEC will need to decide whether to appeal the decision or to revise the rule to fix the infirmities found by the Court.
Either way, it seems unlikely that the new rules will be in place for the upcoming 10-K cycle.
Please direct any questions or observations to Gunster securities law and corporate governance practice leader Bob Lamm.
YES! PLEASE SIGN ME UP TO RECEIVE EMAIL ALERTS FROM OTHER GUNSTER PRACTICE AREAS.
This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
About Gunster
Gunster, Florida’s law firm for business, provides full-service legal counsel to leading organizations and individuals from its 13 offices statewide. Established in 1925, the firm has expanded, diversified and evolved, but always with a singular focus: Florida and its clients’ stake in it. A magnet for business-savvy attorneys who embrace collaboration for the greatest advantage of clients, Gunster’s growth has not been at the expense of personalized service but because of it. The firm serves clients from its offices in Boca Raton, Fort Lauderdale, Jacksonville, Miami, Naples, Orlando, Palm Beach, Stuart, Tallahassee, Tampa Bayshore, Tampa Downtown, Vero Beach, and its headquarters in West Palm Beach. With more than 280 attorneys and consultants, and over 290 committed support staff, Gunster is ranked among the National Law Journal’s list of the 500 largest law firms and has been recognized as one of the Top 100 Diverse Law Firms by Law360. More information about its practice areas, offices and insider’s view newsletters is available at www.gunster.com.
