By Lene Powell, J.D.
In a court challenge by the U.S. Chamber of Commerce, the SEC argued that share buybacks are not constitutionally protected “expressive activity,” as argued by the Chamber. The SEC urged the court not to stay final rules adopted in May (Chamber of Commerce of the USA v. SEC, October 6, 2023).
Rule challenge. The Chamber filed a petition in the Fifth Circuit challenging SEC rules that require issuers to provide detailed data on share repurchases. The SEC countered that its cost-benefit analysis was sufficient and the rules should survive judicial scrutiny.
Repurchases not “expressive activity.” In a letter to the court on October 4, the Chamber said the Supreme Court will address the constitutionality of the individualized explanation requirement in a Texas law that the SEC analogizes to the buyback rule. Specifically, the Chamber noted the Supreme Court’s grant of certiorari in NetChoice v. Paxton, involving a First Amendment challenge to Texas HB 20, which prohibits censorship by social media platforms and requires disclosures on content moderation.
The SEC replied that the Fifth Circuit does not need to await a decision in the NetChoice v. Paxton appeal because “constitutionally protected expressive activity” is not at issue in the stock buyback rules. Issuers repurchasing their own securities are engaged in purely commercial transactions, without any expressive component. Further, no circuit split exists as to the relevant holding that the “reason” for content-moderation decisions is “purely factual and uncontroversial information” reviewed under Zauderer v. Office of Disciplinary Counsel.
No stay. The SEC urged the court to reject petitioners’ suggestion to stay the rule sua sponte, saying the Chamber did not identify a reason to relieve them of their burden to file a stay motion.
No vacation on APA grounds. The SEC also countered the Chamber’s suggestion that the court vacate the rule “based on one or more of the Administrative Procedure Act (“APA”) grounds.”
“As discussed, the Commission conducted a ‘reasonable and reasonably explained analysis’ that addressed all significant points raised in comments, ‘which is all the APA requires,’” the SEC wrote.
This is case No. 23-60255.