In 2014, the Securities and Exchange Commission announced that all comment letters would request that the issuer include the so-called “Tandy Letter”. Thus, all staff comment letters include a request for a written statement in haec verba:
- The company is responsible for the adequacy and accuracy of the disclosure in the filing;
- Staff comments or changes to disclosures in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
- The company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
The “Tandy Letter” was the result of a compromise that was reached when an issuer was seeking to have a registration statement declared effective under the Securities Act when the SEC staff was inquiring into possible securities law violations by that issuer. As a compromise in that specific context, the statement arguably made some sense. The extension of the “request” to all issuers, however does not. Although the practice has been in place for over a decade, time does not make it any less odious.
More importantly, I question whether this forced speech is even legally accurate. Sections 23 of the Securities Act and Section 26 of the Securities Exchange Act prohibit certain statements regarding registration and the acts of the SEC. Unless the “Tandy Letter” is entirely redundant, it covers more than what is statutorily proscribed. What court has actually held that a company may not assert staff comments as a defense? Indeed, staff comments or responses may be relevant to issues such as scienter or even falsity. While staff comments do not constitute official expressions of the SEC’s views, even the SEC acknowledges that:
[opinions expressed by the staff] represent the views of persons who are continuously working with the provisions of the statute involved. And any statement by the director, associate director, assistant director, chief accountant, chief counsel, or chief financial analyst of a division can be relied upon as representing the views of that division.
17 C.F.R. 202.1(d). As such, staff comments may be helpful or relevant.
At a minimum, the SEC’s decision to force speech is dubious from a policy perspective. More importantly, there appears to be no legal basis for the statement that staff comments may not be asserted, aside from the fact that the staff requires issuers to regurgitate the statement.
Commission Adds “Or More” To The Exchange Act
Yesterday, the SEC adopted amendments to implement JOBS Act and FAST Act changes for Exchange Act registration requirements. In doing so, the SEC responded to my comment letter (see Footnote 24 to the Adopting Release). The SEC made not attempt to explain their response, apparently being satisfied that it was enough to announce it.