In 2021, the SEC announced a novel rule interpretation imposing public disclosure requirements on private companies that raise capital through a certain type of corporate bond (referred to as Rule 144A securities). This interpretation would have severely disrupted private companies’ ability to access debt markets, risking higher borrowing costs, less liquidity and job loss.
In the fall of 2022, the NAM joined the Kentucky Association of Manufacturers in filing two petitions for rulemaking with the SEC seeking to forestall the economic damage the new rule interpretation would cause: one called on the SEC to promulgate a new rule (giving all relevant stakeholders a chance to weigh in) or utilize its exemptive authority to protect private Rule 144A bond issuers from the public disclosure rule, and another asked for temporary “no-action” relief while the SEC considered how best to reverse course. In response to our petitions, the SEC announced that it would not begin applying the new public disclosure requirements to Rule 144A securities until January 2025, but took no action on the petition requesting rulemaking or an exemption.
After ten months of SEC inaction on the petition, the NAM and the KAM took the fight to federal court, using a three-pronged approach to obtain judicial review. First, we sued the SEC in the Eastern District of Kentucky, challenging the SEC’s novel interpretation of Rule 15c2-11 as unlawful under the APA—arguing in our complaint that the agency did not comply with the law’s notice-and-comment requirements and that the new interpretation itself is arbitrary and capricious. We also filed in the 6th Circuit a petition for review and petition for a writ of mandamus that would direct the SEC to act on our petition for rulemaking.
On the day of its first substantive filing deadline in the 6th Circuit, the SEC issued an order exempting Rule 144A securities from the public disclosure requirements—the precise relief that NAM and KAM had been seeking. The SEC’s order muted any further litigation.