January 15, 2008
Issuers are prohibited under the securities laws from communicating misleading information. The SEC should be held to no less a standard.
Pinpointing companies that do business in countries designated as sponsors of terrorism can do nothing but mislead. It is impossible for the public to know what to do with the information. Is the company doing something illegal? If so, is it serious? Is it material? How serious is the illegality, if thats what it is, compared to other illegalities the company may have committed? Has the company disclosed all other violations of law? Are all such violations material? Unpaid parking tickets for company cars? The sale of tainted cat food in Singapore? Questions like these are just the beginning.
Does the company derive revenue from countries subject to economic sanctions? If so, how is that revenue derived? If derived from a foreign subsidiary, have the subss activities been approved by the parent? Has the parent engaged in illegal acts of facilitation? Arent there exceptions under U.S. law permitting activities in Southern Sudan? Just where is Southern Sudan?
Does the company do business with boycotting countries? Saudi Arabia or Kuwait? Doesnt the U.S. impose tax penalties for agreeing to cooperate with the Arab boycott of Israel? Arent there adverse tax consequences for the companys boycott-related business? Does it matter whether these are material?
For that matter, arent all countries, in effect, subject to economic sanctions of one sort or another because U.S. export control laws regulate what they or their citizens may receive from the United States? Is a state sponsor of the Arab boycott of Israel or a country that does business with Syria or Iran less heinous than a "state sponsor of terrorism?" Is a country that does business with those countries less worthy of public notice than a company that does business directly with a state that does business with terrorists? Should companies have to disclose that they do business with Germany or Russia because those countries do business with Iran?
These are but a few of the hundreds of questions that emphasis on one aspect of a companys activities might engender. Unless all are answered, the information that triggers them is misleading. It is misleading either because it suggests that the company may be doing something illegal or might have adverse financial consequences even if not illegal. Neither might be true, but how is the public to know? Pinpointing the activity surely suggests something may be amiss.
The SEC's proposed development of mechanisms to facilitate access to disclosures of activities in or with countries designated as state sponsors of terrorism reflects pressure on the SEC to lend itself to efforts to stop behavior that Congress has not seen fit to prohibit. The SEC should not succumb. It most assuredly should not engage in activities that will raise more questions than they answer. To do so, is misleading. To do so is to act in ways issuers are admonished to avoid.