Why Do SEC Staff Prohibit Accurate Reporting? – Company / commercial law
United States: Why Do SEC Staff Prohibit Accurate Reporting?
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Section 601 (b) (5) (i) of Regulation SK requires that all documents filed under the Securities Act of 1933 include as an exhibit the opinion of legal counsel regarding the legality of registered securities, stating s ‘they will, when sold, be legally issued, fully paid and not assessed, and, if they are debt securities, if they will constitute binding obligations for the registrant. Because so many registrants are incorporated in the state of Delaware, corporate attorneys in California and other states have become accustomed to providing basic Delaware legal advice, including the advice required by the section 601 (b) (5) (i). The question is not whether the lawyer giving the opinion is practicing the law in Delaware. Rather, it is a question of whether the lawyer has the requisite familiarity with Delaware law to render the opinion competent. See the TriBar opinion committee, Third Party “Closure” Notice § 5.3 (1998). As the TriBar Opinion Panel observed, “mere admission to practice does not establish competence”.
Securities and Exchange Commission staff agree that “lawyers may rule on the laws of the states in which they are licensed to practice.” SEC Staff Legal Bulletin No. 19 (CF) (October 14, 2011). Oddly, however, the staff will not allow lawyers to make the exact disclosure regarding where they are admitted (or not admitted):
For example, if a lawyer admitted to practice in Massachusetts is writing a legality opinion under New York State law for debt obligations whose deed is governed by the law of the State of New York , the lawyer may not state in the notice that he or she is not licensed to practice in New York State. York or is licensed to practice only in Massachusetts.
It is difficult to explain why the ban on exact disclosure harms investors. Perhaps Staff view this additional disclosure as “cover” by legal counsel. If this is the staff perspective, however, that would be a reason to include, not exclude, disclosure. If it is a question of jurisdiction, disclosure of where the lawyer is or is not admitted is not important. Staff should not prohibit accurate and intangible disclosures.
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