Keeping your comments private
The SEC, the Freedom of Information Act, and you
By By Julie A. Bell
So, you have put the finishing touches on your response
letter to the SEC. You know, your responses to the staff
comments of the Division of Corporation Finance that were
issued on your recent Form 10-K, Form S-1 or other filing.
You have checked to ensure that each comment and a response,
even if it's as simple as "We acknowledge and confirm
our understanding of the staff's comment," has been
included.
You have also brought together for submission to the staff
any supplemental information requested according to the
comments. This information could consist of the "board
books" compiled in connection with an acquisition, or
the reports, articles or studies on which you have based
your statistical information throughout the prospectus or
report. Your response letter has been formatted, or
"EDGARized," for filing on EDGAR, the SEC's
electronic filing system. Finally, all of this information
is ready for delivery to the respective staff members for
their eyes only.
But is it for their eyes only?
A common misperception among public companies and their
counsel is that letters drafted to respond to SEC comments
(commonly referred to by companies and their counsel as
"comment response letters"), as well as any
supplemental information requested by the staff during the
review process, will only be viewed by members of the staff
of the commission.
On the contrary, much of this information, including any
purported confidential information of a company that may be
contained in such materials, will be available to the public
if so requested under the Freedom of Information Act, or the
FOIA (5 U.S. Code 552), and its related rules (17 C.F.R.
§§ 200.80 through 200.83), unless the proper
procedures are followed.
Likely because of this misperception, it is the experience
of this SEC staff attorney that many companies, as well as
their counsel, are not aware of the availability or even
necessity of the procedure existing under Rule 83 of the
FOIA under which these materials may be afforded
confidential treatment.
Even if they are aware of the procedures, companies and
their counsel typically do not follow them correctly. Many
staff members report that it is rare to see a Rule 83
confidential treatment request done correctly, and this
includes by many of the more prominent law firms and Fortune
500 companies across the country.
This failure to follow the correct procedures under Rule 83,
or the general lack of understanding or awareness of the
FOIA in general, leads to a false sense of belief that
comment response letters and supplemental materials,
including the confidential information and certain
discussions with the staff that may be contained in such
materials, will always remain confidential and protected
from disclosure.
To exacerbate the problem, in this age of corporate scandals
and the frenzy of investigations into who said what, to whom
and when, the number of requests for this information
received by the commission under the FOIA has increased
significantly. The number of these requests received by the
commission as of July 2003 had already exceeded the total
number of such requests for fiscal 2002, and is almost
triple the number of requests for fiscal 2001 (see
sidebar on page 37).
This article summarizes the various procedures that should
be followed by companies and counsel in order to properly
request confidential treatment of comment response letters
and other supplemental materials filed with the commission
under Rule 83. It also covers information not otherwise
required to be filed or disclosed to the commission. It does
not discuss the requirements and procedures for seeking
confidential treatment of information required to be filed,
such as material contracts, under Rule 406 under the
Securities Act of 1933 and Rule 24b-2 under the Exchange Act
of 1934.
There is generally no requirement that companies prepare and
provide to the staff a letter that responds, comment by
comment, to the staff's comments on a particular filing with
the commission. However, as almost any current or former
staff member will tell you, such a response letter greatly
facilitates the review of the respective filing. As a
result, most companies prepare comment response letters with
the goal of a potentially speedier review and clearance in
mind.
When such letters are prepared, Item 101(a) of Regulation S-
T — the regulation containing the general rules and
regulations relating to electronic filings —
generally requires that these comment response letters, as
well as any additional requested supplemental information or
other correspondence related to the filing, be filed
electronically. This should typically be done under the
EDGAR header tag "correspondence," the nonpublic
EDGAR storage database.
"Nonpublic" in this context simply means that the
general public cannot view the information in a public
database. It does not mean that this information is
not available to the public under the FOIA.
Thus, we start with the premise that all comment response
letters and supplemental information provided to the staff
must be filed electronically on EDGAR and is subject to the
FOIA. There are generally two exceptions to this premise.
First exception — Rule 101(c)(2) of Regulation
S-T provides that supplemental materials must be submitted
electronically unless the submitter requests that the
information be returned after staff review and the
information is of the type typically returned by the staff
under Rule 418(b) under the Securities Act or Rule 12b-4 of
the Exchange Act.
Rules 418(b) and 12b-4 generally provide that the staff will
return, on request, any supplemental information filed by a
company or its counsel provided:
the request is made at the time of submission of the
supplemental material, the return of the information is consistent with the
protection of investors, the return of the information is consistent with the
provisions of the FOIA, and the information was not filed in electronic format.
The importance of this first exception to electronically
filing supplemental materials, by requesting the return of
these materials submitted to the staff, needs to be
emphasized. It is fairly simple to ask the staff to return
supplemental materials, such as "board books,"
reports and similar materials, on filing. The staff
typically will return these materials on request, so long as
the return of the information is consistent with the
protection of investors.
The phrase "consistent with the protection of
investors"should not dissuade companies from
voluntarily submitting the requested materials to the staff.
In relatively rare circumstances, the staff may invoke this
phrase in order to retain supplemental materials that would
be inefficient or impractical to return. For example, if the
supplemental materials are too voluminous for the staff to
efficiently extract the necessaryinformation, the staff may
order that the materials be retained.
Generally, however, the staff's bias is to return the
materials, thus ensuring that the supplemental materials
will not become the subject of a request under the FOIA. Of
course, the company may have to battle it out in a courtroom
with a particular shareholder or requestor under the FOIA
for the information, but any such decision will be made more
appropriately by a court and not the commission.
It should be noted that if the request for return of
supplemental materials is not made, and there is no request
for confidential treatment under Rule 83, these materials
— such as "board books" — technically
must be filed electronically. It is critical to bear this in
mind because, as stated in Note 1 to Item 101(a) of
Regulation S-T, the failure to file required information
electronically can result in ineligibility to use Forms S-3
and S-8, among other forms, as well as toll certain time
periods associated with tender offers under Rules 13e-
4(f)(12) and 14e-1(e) under the Exchange Act, plus other
penalties.
Second exception — The second exception to the
general rule of electronically filing comment response
letters and other supplemental materials with the
commission, also found in Rule 101(c)(2) of Regulation S-T,
is to request confidential treatment under FOIA Rule 83.
In Release No. 33-6241 (Sept. 19, 1980), the commission
adopted Rule 83 under the FOIA to create a procedure for
confidential treatment requests applicable to documents for
which there were no other specific procedures in place and
that, in the normal course of commission business, would be
placed in a nonpublic file.
The genesis of this new rule was the Supreme Court's
decision in Chrysler v. Brown (441 U.S. 281 (1979)),
in which the court held that submitters of information to an
agency have no right to de novo review under the FOIA
of an agency's decision to release purportedly confidential
records. As a result of that decision, the commission became
concerned that "submitters may not be able to protect
their interests without imposing an undue burden on the
commission's processes" (Release No. 33-6241 (Sept. 19,
1980)).
The adopting release makes clear that the procedures under
Rule 83 do not establish substantive criteria for resolving
confidential treatment requests. Rather, the rule is
designed to give the commission the maximum amount of
flexibility in determining issues of confidentiality on a
case-by-case basis in accordance with applicable law. In
addition, as discussed below, the rule provides that the
ultimate determination as to whether particular information
is in fact confidential and thus not subject to release
under the FOIA will be made only at the time a request for
disclosure under the FOIA, if any, is received by the
commission, not at the time of the initial Rule 83 request
for confidential treatment.
Under the FOIA, any person may request copies of or access
to various records of or filings with the commission. Under
Rule 80(a)(4), on a proper request, the commission is to
make any requested records promptly available to any person
requesting the information. To be proper, the requestor must
follow the procedural requirements of Rules 80(a), (d) and
(e) regarding where and how to submit the request, a
description of the records requested and payment of the
proper fee.
Generally, the commission must respond within 20 business
days of the original request, stating either that the
records are being withheld under a specific exemption or the
records are being released, in whole or part. Given the
current overload of FOIA requests to the commission,
however, this 20-day time period is likely difficult for the
staff to meet. As such, as provided under Rule 80(d)(7), the
staff may request extensions of time by written notice to
the requestor under FOIA.
This may be done in unusual circumstances, such as, in
addition to the current flood of FOIA requests, especially
voluminous records or records that require the need for
consultation among two or more components within the
commission.
To seek protection against disclosure of a company's
purportedly confidential information that may be included
within comment response letters or other supplemental
information filed with the commission, certain procedural
requirements under Rule 83 must be followed ( see sidebar
on page 38).
Rule 83(c) requires that a company, at the time the
information is first received by the commission, must take
all steps reasonably necessary to ensure that the
information:
is supplied segregated from information for which
confidential treatment is not being requested, is appropriately marked as confidential, and is accompanied by a written request for confidential
treatment that specifies the information about which
confidential treatment is requested.
Practically speaking, this means the company or its counsel
should file on EDGAR the comment response letter or other
supplemental information with the information for which it
requests confidential treatment redacted (as one would
typically redact information in, for example, a material
contract under Rule 406 or Rule 24b-2 of the Securities Act
or Exchange Act, respectively). The company must also
clearly mark each page or portion of each page with the
words "Confidential Treatment Request by [name]"
and an identifying number and code.
Simultaneously, the company should submit to the staff
examiner, on paper, a copy of the comment response letter in
full, with no redactions. The letter requesting confidential
treatment submitted to the staff along with the hard copy of
the materials needs to clearly indicate that the company is
requesting confidential treatment under Rule 83 and
specifically identify the sections or provisions of the
materials for which it is requesting confidential treatment.
One of the more common mistakes made by companies or their
counsel is to simply state, in the introductory paragraph of
the comment response letter, "The company hereby
requests confidential treatment of the contents of this
letter [or other supplemental information] pursuant to Rule
83 under the Freedom of Information Act." Not
surprisingly, the staff generally will not accept such a
blanket request for confidential treatment of a comment
response letter or other supplemental information.
Like requests for materials required to be filed with the
commission (such as material contracts), companies and their
counsel must be selective in what they consider to be
confidential information and make their requests narrow. If
a blanket request is received, the staff will ask the
company to resubmit its paper and electronic submissions,
limiting the Rule 83 request to only those provisions or
sections of materials that the company believes must truly
remain confidential.
In the rare circumstances where the staff agrees that it is
appropriate for an entire comment response letter or other
supplemental materials to be afforded confidential
treatment, the company should still file a short letter on
EDGAR indicating that the subject material was submitted in
paper following a Rule 83 confidential information request.
This serves as a record to the commission as well as the
public that the respective material does in fact exist. The
staff will request such a filing if it is not made.
Similarly, as noted above, companies need to be selective in
their requests for confidentiality. While a substantive
determination as to whether the requested information will
be deemed confidential will be deferred until an actual FOIA
request is received by the staff, a comment response such as
"We note the staff's comment" or information
contained within a "board book" that is also
disclosed in the company's actual filing (such as certain
events leading up to the consummation of a merger
transaction that is disclosed in a Form S-4) rarely would be
considered confidential information and would likely be
rejected up front by the staff.
In addition to submitting a copy of any written request for
confidential treatment to the staff examiner, the company
must also send a copy of the request (but not the underlying
information) to the Office of Freedom of Information and
Privacy Act Operations to the address set forth in Rule
83(c)(3), with the legend "FOIA Confidential Treatment
Request" clearly and prominently appearing on the top
of the first page of the written request.
It is important to note that this filing with the Office of
Freedom of Information and Privacy Act Operations must also
contain the name, address and telephone number of the person
requesting confidential treatment. This information needs to
be updated as necessary to ensure that the Office of Freedom
of Information and Privacy Act Operations can communicate
promptly with the proper company contact on receipt of any
request under the FOIA for disclosure of the previously
requested confidential information. It is not likely sparse
time and resources will be spent attempting to track down
the proper company contact in order to respond to a request
under the FOIA.
Under Rule 83, if no request for confidential treatment of
the comment response letter or other supplemental
information has been made at the time of a request under the
FOIA, it is presumed that the company has waived any
interest in asserting an exemption from disclosure under the
FOIA. Notwithstanding this presumption, Rule 83(h)(2)
provides, in appropriate circumstances, that an appropriate
staff member may contact any person potentially affected by
the disclosure of information under the FOIA to determine
whether the person desires to make a request for
confidential treatment.
Companies should not, however, rely on this provision of the
rule. It is likely any such affirmative action on the part
of the staff would be used only in extremely rare
circumstances, where it is readily apparent that negligence
may have occurred. For example, if the formula for Coca-Cola
were included in a comment response letter with no
corresponding request for confidential treatment, and an
FOIA request for disclosure of this letter was received, the
staff may contact the company to see if a mistake was in
fact made.
It must also be emphasized, however, that because of the
sheer volume of FOIA requests currently being received by
the staff, it is inevitable that not all negligence will be
noticed.
Even if a company or its counsel files the initial
confidential treatment request appropriately, this initial
request automatically expires 10 years after the request is
made, unless the Office of Freedom of Information and
Privacy Act Operations receives a renewal request before the
original request expires. As before, the renewal request
must be sent to the Office of Freedom of Information and
Privacy Act Operations and must clearly identify the record
for which renewal confidential treatment is sought. The
renewal request will also expire 10 years from the date that
office receives that request, unless an additional renewal
request, meeting the same requirements, is received.
As mentioned above, Rule 83(c)(6) provides that no
determination as to the validity of any request for
confidential treatment under Rule 83 is made until a request
for disclosure of the information under the FOIA is actually
received by the commission. In other words, a company does
not need to substantiate its request for confidential
treatment of the information in the comment response letter
or other supplemental information until a request is made
under the FOIA for its release.
This provision is what distinguishes Rule 83 from the
confidential treatment process typically followed by
companies and their counsel under Rule 406 of the Securities
Act and Rule 24b-2 of the Exchange Act with respect to
material contracts or other similar information required to
be filed with the commission under Item 601 of Regulation S-
K or otherwise.
Under the latter procedure, the company makes the
confidential treatment request and substantive arguments in
favor of such treatment at the time of the filing of the
respective information. The staff immediately reviews the
company's arguments in favor of confidentiality and makes
the determination, at that time, as to whether confidential
treatment is appropriate.
Under Rule 83, if a person makes a request under the FOIA
for the disclosure of, for example, a comment response
letter, the commission's Freedom of Information Act Officer
will promptly notify the company (or any other person named
in the Rule 83 confidential treatment request who is to be
contacted to substantiate the information). The company will
then have 10 calendar days to substantiate the request.
Failure to submit the written substantiation within this 10-
calendar day period could be deemed a waiver of the request
and result in the information being disclosed if the staff
does not otherwise believe the materials should be withheld
under the FOIA.
To substantiate the confidential treatment request, as
required by Rule 83(d)(2), the company will need to provide
the following, among other information, regarding the
request:
the reasons why the information should be withheld under
the FOIA and the specific exemptive provisions of the FOIA
relied on (such as, a trade secret); the adverse consequences to a business — financial,
competitive or otherwise — that would result from
disclosure of confidential commercial or financial
information; the measures taken by the company to protect the
confidentiality of the information prior to and after its
submission to the commission; the ease or difficulty of a competitor's obtaining or
compiling the commercial or financial information; and
whether the commercial or financial information was
voluntarily submitted to the commission and, if so, whether
and how disclosure of the information would tend to impede
the availability of similar information to the commission.
On the staff's preliminary determination that the
confidential treatment request (and later substantiation)
should be denied in whole or part, the company will have 10
additional calendar days from the date of the preliminary
decision to submit supplemental arguments to the staff. The
ultimate decision regarding the grant-ing or denial of the
FOIA request will be sent to the requestor of the
information and the company no sooner than 10 calendar days
after the preliminary decision.
It should be noted that an adverse decision can be appealed
by the company to the general counsel of the commission
during 10 calendar days after the date of the final
decision. If the decision is not appealed in this 10-
calendar day period, the information will be released under
the FOIA. Similarly, on a determination that the
confidential treatment request under Rule 83 is approved,
the person requesting access to the information under the
FOIA may appeal this decision to the general counsel of the
commission.
Public companies and counsel subject to the review process
by the staff of the commission need to be aware that comment
response letters and other supplemental information provided
to the staff on request can be disclosed on a proper request
under the FOIA. This is especially important in the current
environment as the number of FOIA requests received by the
commission has reached unprecedented levels.
With respect to certain supplemental materials,
consideration should be given to requesting that such
materials be returned to the company after review by the
staff. To the extent this is not appropriate, companies and
their counsel must follow the required procedures to protect
purported confidential information contained in comment
response letters and other supplemental materials from
disclosure under the FOIA. Failure to do so could lead to
FOIA disclosures that are harmful to a company's business.
Volume of FOIA requests
The commission's fiscal year begins in October of each year.
The total FOIA requests in fiscal year 2001, fiscal year
2002 and the first 10 months of fiscal year 2003 were 422,
776 and 1,226, respectively. These figures represent the
FOIA requests assigned to the Division of Corporation
Finance only.
In addition, such requests represent requests for comment
response letters and other supplemental information, as well
as requests for other information such as the commission's
rule-making activities and information related to various
filings. However, the vast majority of FOIA requests are for
comment response letters and other supplemental information
requested through the comment process.
Governing rules
Rule 83(b) makes clear that the provisions set forth in
the rule apply only where no other statute or commission
rule provides procedures for requesting confidential
treatment respecting particular categories of information,
or where the commission has not specified that an
alternative procedure be used in connection with a
particular study, report, investigation or other matter.
For example, Rule 81(b) sets forth the procedure to be
followed by a company with respect to requests for
confidential treatment regarding no-action letters filed
with the commission. In addition, Rules 406 and 24b-2 govern
the procedures to be followed with respect to confidential
treatment requests regarding filings made under the
Securities Act and Exchange Act, respectively.
Bell is a special counsel in the Office of Rulemaking,
Division of Corporation Finance, at the Securities and
Exchange Commission, in Washington. Her e-mail is
bellj@sec.gov.
Prior to
joining the staff, Bell practiced for six years with Wilson
Sonsini Goodrich & Rosati. The author would like to
thank Jake Fien-Helfman and Herb Scholl in the Office of
EDGAR and Information Analysis, Division of Corporation
Finance, for their advice and assistance on this article.
The Securities and Exchange Commission, as a matter of
policy, disclaims responsibility for any private publication
or statement of any SEC employee or commissioner. This
article expresses the author's views and does not
necessarily reflect those of the commission, the
commissioners or other members of the staff.
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