On December 19, 2023, the U.S. Court of Appeals for the Fifth Circuit formally vacated the Securities and Exchange Commission's recently adopted rules regarding stock repurchases. These rules would have required public companies to disclose more information about stock repurchases, including the rationale for implementing repurchases. The result of this decision is that public companies will not need to comply with these rules in their public disclosures and filings with the SEC.

Background

  • In 2022, S&P 500 companies spent over $900 billion to buy back their own shares,according to S&P Dow Jones Indices.
  • On May 3, 2023, the Securities and Exchange Commission adopted final rules that would have required public companies to disclose certain information about stock repurchases, including certain repurchase data within one business day and the rationale for implementing repurchases.
  • The Chamber of Commerce and other parties initiated litigation challenging the share repurchase rules based on the First Amendment and the requirements of the Administrative Procedures Act. The Chamber of Commerce argued the SEC acted arbitrarily and capriciously by not conducting a proper cost-benefit analysis and insufficiently considering public comments to the rule.

The Fifth Circuit's Decision

The U.S. Court of Appeals for the Fifth Circuit agreed that the SEC acted arbitrarily and capriciously by failing to fully consider the rule's economic justifications, and in an opinion on October 31, 2023, directed the SEC to correct the rule's defects within 30 days.

The Fifth Circuit vacated the rule on December 19, 2023, after denying the SEC's request for an extension to the November 30, 2023, deadline.

As a result, public companies do not need to comply with the vacated rules and should instead continue to provide share repurchase disclosures in line with pre-existing rules.

For More Information

If you have any questions about this Alert, please contact Darrick M. Mix, C. Ben Vila, any of the attorneys in our Capital Markets Group, any of the attorneys in our Securities Law Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.