US court finds SEC conflict minerals rule violates first amendment

The US Court of Appeals for the District of Columbia Circuit has issued a ruling on a case that challenged the Security Exchange Commission’s (SEC) final rule on conflict minerals

The court found that the SEC’s rule, as mandated by the Dodd-Frank Act, violates the first amendment of the US constitution by forcing companies to ‘state on their website that any of their products have not been found to be...conflict free’.

The court did caution that the requirement 'that an issuer use the particular descriptor "not been found to be DRC conflict free" may arise as a result of the Commission’s discretionary choices and not as a result of the statute itself. It went on to say that the statute violates the first amendment to the extent that ‘it imposes that description requirement. If the description is purely a result of the SEC’s rule, then our first amendment holding leaves the statute itself unaffected’.

The Court rejected the plaintiff’s other claims regarding the SEC’s rule as arbitrary or capricious under the Administrative Procedure Act and the Securities Exchange Act.

The court remanded the case back to the US District Court for the District of Columbia for further proceedings.

This article first appeared in Accounting Research Manager (ARM) Special Alert published by Wolters Kluwer US

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