SEC to Release Comment Letters and Responses

The Securities and Exchange Commission recently announced that, beginning August 1, 2004, it will begin publicly releasing its comment letters regarding companies’ filings, as well as company responses to these letters.  Registration statements relating to an initial public offering are almost always reviewed by the SEC.  Additional filings that the SEC may review and comment on are other registration statements, periodic reports on Forms 10-K and 10-Q and current reports on Form 8-K.  SEC comment letters typically address areas in which the SEC believes that disclosure should be improved and supplemented.  A company’s written response to the comment letter either agrees to the SEC’s changes, suggests an alternative approach, or presents the company’s argument why the current disclosure is appropriate. SEC comments and responses will be released not less than 45 days after the SEC has completed its review of a filing.

The new SEC policy is a response to increased requests for the public release of comment letters and responses under the Freedom of Information Act, or FOIA.  Releasing these letters is part of the SEC’s ongoing movement towards transparency by making the letters freely available to a greater audience without the time and costs associated with a FOIA request.

Under the new rule, filers may still request confidential treatment for portions of their response letters.  Confidential treatment will only be granted if there is an appropriate basis for the request and the request is not overly broad.

The SEC may also ask companies to confirm in writing that the comment process cannot be used as a defense in securities litigation against the company.  This written representation by the company is known as a “Tandy” letter.

In light of the new policy, companies should pay heightened attention to any potentially sensitive information contained in their response letters, which will now be readily available to the general public.  However, easy access to comment letters and responses should also benefit companies by providing additional insight into the review process and the disclosure desired by the SEC, as well as the issues the SEC is likely to highlight.

For more information about the SEC comment letter process, please contact one of our securities attorneys.