Summary
On June 24, 2004, the Securities and Exchange Commission announced that it will begin releasing to the public the Staff's
comment letters and companies' corresponding response letters relating to disclosure filings made after August 1, 2004. The
comment letters and responses will be made publicly available on the SEC's website at www.sec.gov not less than 45 days after the Staff has completed a review.[fn1]
Background
Review Process
Disclosure filings with the SEC are under certain circumstances subject to an SEC Staff review. Such filings include:
- registration statements relating to public offerings of securities filed pursuant to the Securities Act of 1933 made on Forms
S 1, S 3, S 4 and S 8;
- periodic reports on Forms 10-K and 10-Q, and current reports on 8-K filed pursuant to the Securities Exchange Act of 1934;
- filings made pursuant to the Trust Indenture Act of 1939; and
- filings made pursuant to the Investment Company Act of 1940.
Registration Statements relating to an initial public offering are almost always reviewed and the SEC is now required to review
a company's periodic disclosures at least once every three years.
The review process typically begins with a letter from the Staff containing specific comments that address areas in which
the Staff believes the disclosure could be improved or enhanced. The company then responds to each comment in a formal letter
and either agrees to the suggested changes, suggests an alternative approach or presents arguments why the Staff's comment
does not warrant change to the disclosure. This process is often iterative, requiring multiple comment letters and response
letters before the review is complete.
Staff Comment Letters
The comment letters set forth the Staff's positions on the particular filing under review and do not constitute an official
expression of the SEC's views. Further, these Staff positions are limited to the specific facts of the filing to which they
apply and do not necessarily apply to other filings. As a result, the Staff's comment letters have little formal precedential
value in addressing future comments to the subject filer or other filers.
Public Availability of Comment and Response Letters
The SEC currently releases comment and response letters only in response to Freedom of Information Act (FOIA) requests and
only to persons making such requests. As a result, although the comment and response letters were always subject to a risk
that they might be obtained by third parties, the process was cumbersome and the number of letters released was limited. The
Staff has recently noticed an increase in the number of comment and response letters being released through the FOIA process.
The Staff believes it is appropriate to expand the transparency of the comment process so that information is available to
a broader audience, without the cost of pursuing an FOIA request. Accordingly, the SEC has decided to make the Staff's comment
letters and companies' response letters freely available on its website.
Timing of Disclosure
Comment and response letters relating to disclosure filings made after August 1, 2004 will be available to the pubic not less
than 45 days after the Staff has completed the review of the filing(s) in question. The Staff will look to the filing that
is the primary focus of the review. For example, if the Staff selects for review a Form 10-K filed before August 1, 2004,
and in connection with that inquiry the Staff also reviews a Form 10-Q or Form 8-K filed after August 1, the applicability
of this new SEC transparency policy will be based on the filing date of the Form 10-K. Similarly, if a registration statement
is filed before August 1, 2004, but an amendment is filed after that date, the applicability of this new policy will be made
on the basis of the earlier filing.
The Staff will announce in the near future when the comment and response letters will be available on its website but, once
website access is established, the Staff expects that comment and response letters will be posted on the website not less
than 45 days after the Staff has completed its review of the related filing.
Confidential Treatment Requests
The SEC's Rule 83 provides a mechanism whereby filers may request confidential treatment for portions of a written response
to a Staff comment letter. That rule requires the filer to submit its response letter using two separate documents -- an Edgarized
response to the comment letter with the confidential information redacted, and a separate non-Edgarized paper document including
the confidential information. The Staff currently contemplates that until the confidential treatment request process is complete,
only the Edgarized redacted version of the response letter will be released. Although helpful, Rule 83 confidential treatment
requests are used and granted sparingly, and the portion of a document that may be redacted is usually limited to a few words,
percentages or dollar amounts. The Staff will generally not entertain requests for blanket confidential treatment of a response
letter.
"Tandy" Letter
The Staff has, at times, allowed a registration statement to become effective even though the company is the subject of an
SEC investigation or examination if the registration statement includes appropriate disclosure about the matters under investigation
or examination. In such circumstances, the Staff may ask for a so-called "Tandy Letter." A Tandy Letter is a formal representation
by the company that it will not assert the affirmative action by the SEC to declare a registration statement effective as
a defense in any subsequent action under the federal securities laws brought by the SEC or any other party. Because the SEC
will be making all comment and response letters publicly available, the Staff will require all companies whose post August
1, 2004 filings are reviewed to provide a Tandy Letter type representation relating to the subject review process.
What to Do
Companies should heighten their awareness to potentially sensitive disclosures, statements and arguments made in response
letters, and view every response through the same prism of other public disclosures. Each response should be carefully considered
to determine whether portions of the response should be the subject of a Rule 83 confidential treatment request. Further,
companies should consider communicating orally with the Staff regarding sensitive issues or to clarify the intent of a specific
comment to reduce the volume of disclosed sensitive communications.
In addition, the availability of comment and response letters of other companies in the same industry or who have addressed
similar disclosure issues should be viewed as a potential resource in preparing to file disclosure documents or respond to
Staff comments. Although such comment and response letters have no formal precedential value, they may provide insight into
the Staff's current thinking on certain issues or highlight current Staff "hot buttons."
Footnotes
1:With respect to investment companies, if the Staff reviews an amendment to a registration statement filed before August
1, 2004, and in connection with that review also reviews a Form N-CSR filed after August 1, 2004, the Staff will not make
the correspondence publicly available through this process. If the Staff reviews an amendment filed after August 1, 2004,
and in connection with that review also reviews a Form N-CSR filed before that date, the Staff would make the appropriate
information publicly available.
