Thursday, May 14, 2015

Campaign for Accountability Sues SEC for Rulemaking on Political Contribution Disclosure

By John M. Jascob, J.D.

The Campaign for Accountability has filed a lawsuit on behalf of investor Stephen Silberstein in an attempt to force the SEC to adopt rules requiring the disclosure of political contributions by public companies. In a complaint filed yesterday in federal district court in Washington, D.C., Silberstein contends that the Commission has acted arbitrarily and capriciously in refusing to grant his petition asking the agency to initiate rulemaking that would require public companies to disclose their use of corporate resources for political activities (Silberstein v. SEC, May 13, 2015).

Petition to the SEC. Silberstein had filed his petition to the SEC in May 2014 along with the non-profit watchdog group, Citizens for Responsibility and Ethics in Washington (CREW). The petition noted that as a shareholder of Aetna, Inc., Silberstein had unsuccessfully sued the company under Section 14(a) of the Exchange Act, alleging that Aetna made false or misleading statements in its proxy materials regarding certain contributions to tax-exempt organizations. The Southern District of New York had denied Silberstein’s request to enjoin Aetna from holding its 2014 shareholder meeting until it amended its reports to reflect all of its political contributions, finding that Silberstein was unable to demonstrate irreparable harm.

Without greater transparency in Aetna’s political contributions, the petitioners argued, Silberstein could not determine whether those contributions were in the best interest of the company. The petitioners thus asked the SEC to take up the issue of political contribution disclosure in a formal rulemaking procedure to address the ineffectiveness of voluntary measures, including numerous deficiencies in corporate disclosure reports. The petitioners noted that a similar petition submitted in 2011 by the Committee on Disclosure of Corporate Political Spending had gained widespread public support, garnering over 700,000 signatures.

SEC’s refusal to take action. In his complaint in the present action, Silberstein notes that despite this demonstration of unprecedented public support and compelling evidence that public companies are “pouring massive amounts of dark money into our electoral system,” the SEC has yet to take action or even respond to his petition. According to the complaint, the SEC’s effective denial of Silberstein’s petition and its failure to provide a reasonable explanation, or any explanation at all, is arbitrary, capricious, and a violation of the Administrative Procedure Act. Accordingly, Silberstein asks the court to issue a declaratory judgment in his favor and to grant him an injunction compelling the Commission to initiate a rulemaking procedure to require public companies to disclose their use of corporate resources for political activities.

The case is No. 1:15-cv-00722.

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