Jump to Navigation
Jump to Content

National Ass'n of Manufacturers v. Securities & Exchange Commission

ELR Citation: 44 ELR 20087
Nos. 13-5252, (D.C. Cir., 04/14/2014)

The D.C. Circuit held that the Securities and Exchange Commission's (SEC's) "conflict materials" rule violates the First Amendment. SEC issued the rule in 2012 pursuant to §1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires SEC to issue regulations requiring firms using “conflict minerals” to investigate and disclose the origin of those minerals, particularly with regard to conflicts in the Democratic Republic of Congo (DRC). An association of manufacturers challenged the final rule, raising several claims. The court sided with SEC on the majority of the association's claims. For example, SEC did not act arbitrarily and capriciously by choosing not to include a de minimis exception. Because conflict minerals are frequently used in minute amounts, the SEC could reasonably decide that a per-issuer exception could “thwart” the statute’s goals by leaving unmonitored small quantities of minerals aggregated over many issuers. Though costly, that decision bears a “rational connection” to the facts. Nor was SEC’s due diligence threshold arbitrary and capricious. SEC adopted a lower due diligence threshold to prevent issuers from ignoring "warning signs" that their conflict minerals originated in covered countries. Although SEC adopted an expansive rule, it did not go as far as it might have, and it declined to require due diligence by issuers who encounter no red flags in their inquiry. However, the rule violates the First Amendment to the extent it requires regulated entities to state on their website that any of their products have “not been found to be ‘DRC conflict free'". The label “DRC conflict free” is a metaphor that conveys moral responsibility for the Congo war. By compelling an issuer to "confess blood on its hands," the statute interferes with that exercise of the freedom of speech under the First Amendment.