Two SEC commissioners issued a statement Monday calling for the commission to stay its conflict minerals rule and impose no further regulatory obligations related to the rule until litigation surrounding the rule is completed.
Commissioners Daniel Gallagher and Michael Piwowar said marching ahead with a rule that might be invalidated would be a waste of the commission’s time and resources and of vast sums of investors’ money.
The conflict minerals rule requires issuers to make an effort to determine if the gold, tantalum, tin, and tungsten used in their products originated in mines run by warlords in the Democratic Republic of the Congo (DRC) or its neighboring countries and to disclose their findings.
The first conflict minerals reports are due to the SEC on May 31. But on April 14, the U.S. Court of Appeals for the District of Columbia Circuit ruled that requiring issuers to describe whether their products are “DRC conflict free” violates their free speech rights under the First Amendment.
But the appeals court decision also said issuers should continue tracking minerals through their supply chains. The appeals court remanded the case to district court, and the commission said it is reviewing the appeals court decision.
Gallagher and Piwowar said a stay on the rule should have been granted when the litigation commenced in 2012. Gallagher opposed issuance of the rule in 2012 when it was approved by a 3–2 vote by the five-member commission. Piwowar was not a commissioner at the time.
The rule originated as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203.
There is precedent for an SEC stay of a rule, as the commission stayed proxy rules in 2010 in response to a court challenge by the Business Roundtable and the U.S. Chamber of Commerce.
According to experts, compliance with the rule has required companies to engage multiple functions to dig deep into complex supply chains to attempt to ascertain the origin of their raw materials.
“Given the uncertainty, the wisest course of action would be for the commission to stay the effectiveness of the entire [conflict minerals] rule until the litigation has concluded,” Gallagher and Piwowar said in their statement. “… A full stay of the effective and compliance dates of the conflict minerals rule would not fix the damage this rule already has caused, but it would at least stanch some of the bleeding.”
—Ken Tysiac (firstname.lastname@example.org) is a JofA senior editor.