- Groom Energy Solutions, LLC
- Merger with an affiliate of DK Energy U.S., LLC, a subsidiary of The EDF Group of France
- Massachusetts Clean Energy Technology Center
- Series A Preferred Stock Investment in 7AC Technologies, Inc.
- Seatrade International Co., Inc.
- Stock sale to American Holdco, Inc.
Appeals Court Issues Decision on Conflict Minerals; SEC updates FAQ’s on Conflict Minerals
May 14, 2014
On April 14, 2014, the United States Court of Appeals for the District of Columbia Circuit concluded that the Conflict Minerals Rule as set forth in Rule 13p-1 of the Exchange Act and Form SD “violate[s] the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have ‘not been found to be “DRC conflict free.”’ The Court noted that by “compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.” However, the Court rejected a number of challenges to the SEC’s Conflict Minerals Rule leaving intact for now much of the Conflict Minerals Rule. In rendering its decision, the Court of Appeals issued an order withholding the issuance of its mandate until seven days after disposition of any timely petition for rehearing or petition for rehearing in banc. Thus, the earliest the Court’s mandate may issue is June 5, 2014. Under Rule 13p-1, the first Conflict Mineral Reports are due to be filed on June 2, 2014 creating uncertainty in the application of the Conflict Minerals Rule.
To clear up some of the uncertainty created by the Court’s decision, on April 29, 2014, the SEC Division of Corporate Finance issued a statement that it expects issuers to timely file any reports required by Rule 13p-1 of the Exchange Act. In its statement, the Division of Corporate Finance provided guidance on how to comply with the Form SD in light of the Court’s rulings. The Division of Corporate Finance stated that issuers should comply with and address those portions of Rule 13p-1 and Form SD that were upheld by the Court of Appeals.
Therefore, issuers that do not need to file a Conflict Minerals Report should disclose their reasonable country of origin inquiry and briefly describe the inquiry that it undertook. For those issuers that are required to file a Conflict Minerals Report, the report should include a description of the due diligence that the company undertook; however, the issuer would not have to identify the products as “DRC conflict undeterminable” or “not found to be DRC conflict free”. The issuer should, however, disclose for those products, the facilities used to produce the conflict minerals, the country of origin of the minerals and the efforts to determine the mine or location of origin.
In light of the Court’s decision and appeals process, the Division of Corporate Finance stated that it will consider the need for additional guidance in advance of the June 2, 2014 due date.
Additionally, on April 7, 2014, the Division issued nine additional frequently asked questions related to the Conflict Minerals Rule supplementing the previous twelve frequently asked questions issued in May 2013, which are posted on the Division’s website under its compliance and disclosure interpretations. The additional frequently asked questions focus on questions concerning the Conflict Minerals Report and the independent private sector report (IPSA) that an issuer must obtain for its Conflict Minerals Report. The IPSA is not required for products that are “DRC conflict undeterminable” until after a temporary transition period that is for the first four calendar years following November 13, 2012 for smaller reporting companies and two years for all other issuers.
Client Advisory is provided for information purposes only, and does not constitute legal advice. According to Mass.SJC Rule 3:07, this material may be considered advertising. ©2014 Posternak Blankstein & Lund LLP. All rightsreserved.