Several Business Groups Sue The Sec Over Stock Buyback Regulations

A lawsuit has been filed by a coalition of business groups, spearheaded by the U.S. Chamber of Commerce, against the Securities and Exchange Commission (SEC) in an effort to block new regulations mandating increased disclosure on stock buybacks by public companies. 

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The lawsuit was submitted to a conservative appeals court that is often favored by industry groups opposing government regulation. This legal action marks one of the initial challenges to SEC Chair Gary Gensler's regulatory agenda, signaling a forthcoming clash between Wall Street and its primary regulatory body as Gensler prepares to adopt numerous rules opposed by the industry.

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The U.S. Chamber emphasized its objective to safeguard investors' returns and preserve companies' decision-making autonomy, free from excessive government oversight. The SEC's new rules require most public companies to provide daily reports on their share repurchases instead of the current monthly aggregates. 

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Additionally, they must indicate if their officers and directors bought or sold shares within four business days of announcing a buyback program, among other disclosure requirements. These new mandates will be incorporated into companies' quarterly reports, commencing in the fourth quarter.

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An SEC spokesperson affirmed that the agency will vigorously defend the challenged rule in court. The SEC contends that the enhanced disclosures will facilitate easier comparisons between the timing of share buybacks and stock trades executed by managers and directors. 

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Furthermore, the disclosures aim to identify buybacks aimed at inflating executive compensation or earnings per share, rather than maximizing shareholder returns. Gensler asserted last week that the new rules would enhance transparency and integrity in the buyback process.

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Share repurchases typically drive up a company's stock price and are a key means by which companies distribute surplus funds to their investors, alongside dividends. Democrats have long criticized these transactions, alleging that they distort the tax system and incentivize companies to prioritize the distribution of profits to investors and executives over investments in workers, technology, or production.

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The rule was passed by the SEC's five-member commission along party lines, with both Republican members voting against it. The U.S. Chamber's co-plaintiffs in the lawsuit are two Texas-based organizations: the Texas Association of Business and the Longview Chamber of Commerce. They filed the lawsuit in the Fifth U.S. Circuit Court of Appeals, which encompasses Texas, Louisiana, and Mississippi, and where the majority of judges (20 out of 26) were nominated by Republican presidents.

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Although the SEC has yet to finalize most of the proposed rules under Gensler's leadership, it has successfully defended against two legal challenges thus far. The most recent case involved the U.S. Chamber's attempt to reinstate certain restrictions on firms providing proxy-voting advice to shareholders of public companies. In that instance, a judge ruled in favor of the SEC last month.

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