Updated Guidance On Confidential Treatment In SEC Filings

By | 01/18/2021 | 10:46 am ET

On December 4, 2015, President Obama signed the “FAST Act” (Fixing America’s Surface Transportation Act), following which the SEC adopted amendments to Regulation S-K in March 2019 to facilitate companies. One of the amendments includes modification in CTR (Confidential Treatment Request), an application made by a registrant to the SEC requesting redaction of specific information and not publicly disclosed for a specified period.

Let us first understand what kind of information is considered confidential:

If disclosed, any information that can harm a company’s competitive advantage and is immaterial to the investors is treated as confidential. A CTR must refer to any of the nine categories of information specified by the FOIA for exemption. Examples include trade secrets and commercial or financial information obtained from a person and privileged or confidential, including:

    • Pricing terms
    • Technical specifications
    • Payment terms
    • Sensitive information regarding business strategy, the timing of research, development, and commercialization efforts
    • Details of intellectual property such as a filed patent
    • Details of cybersecurity procedures and
    • Customer databases.

However, not all trade secrets may be kept confidential by public companies as required by Regulation S-K and S-X, which includes:

    • Identity of 10% or more customers
    • Identity of 5% or more shareholders
    • The amount in dollars of backlog orders
    • Duration and effect of all patents, trademarks, licenses, and concessions held
    • Related party transactions
    • Executive compensation.

Also, a company can never obtain confidential treatment for information already in the public domain.

A. Confidential Treatment Requests Under Rule 406 or 24b-2

The procedure for seeking CTR under the Securities Act of 1933 and the Securities Exchange Act of 1934 are mentioned in Rule 406 and Rule 24b-2, respectively.

Procedure:

    • All CTR’s requests under these rules must be made in paper format and not electronic.
    • The SEC will declare the registration statement effective only after the resolution of all its questions.
    • The confidential information must be omitted from the relevant EDGAR filing, noting that information has been omitted based on a CTR.
    • All documents and information must be marked “Confidential Treatment.” And sent to the specific fax number and designated person
    • The CTR must include one unredacted copy with a cover letter or memo containing:
        • Identification of the confidential information
        • Reason for confidential treatment with reference to provisions under FOIA (Freedom of Information Act) and SEC rules
        • Confidentiality period with justification
        • Detailed explanation on why the disclosure is unnecessary for the protection of investors
        • Written consent to the furnishing of the confidential information to the government and Congress
        • The name, address, and telephone number of the person to whom all the notices and orders should be directed.
    • Additional requirements under Rule 24b-2:
        • The name of each exchange where filing will be done
        • Statements certifying that confidential information:
            1. Is not disclosed to the public
            2. Disclosure will harm the company
            3. It is not necessary for the protection of investors

The companies can apply for the extension of CTR for either three, five, or ten years before the original order’s expiry by filing a one-page form. The short-term application can also be used when the concealed information is reduced but not for additional redactions. All short-term requests can be sent to CTExtensions@sec.gov. An order will be updated on EDGAR on acceptance of CTR. In case of denial, the company will be permitted to withdraw the filing if withdrawal is otherwise applicable (such as a voluntary S-1 filing or Exchange Act report by a voluntary filer).

B. Confidential Treatment Requests for Material Contracts

The SEC permits companies to redact specific confidential information from identified material agreement exhibits under Item 601(b)(10) without filing a CTR, provided that the data is not material and competitively harmful if disclosed. Wherever companies do not file CTR, they must mark the omitted exhibit in the index, indicate by brackets where the information is omitted, and include a statement on the redacted exhibit’s first page.

the SEC allows companies to file CTR for the supplemental material in accordance to Rule 83 and after reviewing either returns or destroys the information only if the company follows the procedures given in Rules 418 or 12b-4, not including electronically submitted information

C. Confidential Treatment Requests Under Rule 83

Rule 83 provides a CTR procedure where no other rule applies and is generally used for supplemental information, examinations, inspections, and investigations. A CTR filed under Rule 83 is applicable for 10 years.

Requirements:

    • The submitter of information must mark each page with “Confidential Treatment Requested by [name],” an identifying number and code, such as a Bates-stamped number.
    • The top of the first page must highlight “FOIA Confidential Treatment Request.”
    • Only requests submitted in paper is acceptable.
    • The request must be sent through the specified fax line and office.
    • Where there is live testimony or oral discussions, the CTR must be made contemporaneously followed by a written request within 30 days.

Wherever intimated for substantiation, the requester must provide:

    • Reasons for withholding information referring to specific provisions under FOIA.
    • Other rules and regulations that apply to the information.
    • Presence of any prior determinations by the SEC, other federal agency, or court relating to the information’s confidential treatment.
    • Specific adverse consequences to the business resulting from the disclosure of confidential information.
    • Measures adopted to protect confidentiality before submitting to the SEC.
    • The effort required for a competitor to obtain the specified data.
    • Whether the person voluntarily submitted the information to the SEC.
    • The requirement to maintain the confidentiality of the substantiation argument document.
    • Any additional facts and legal analysis to support the request.

For confidential information required in the SEC registration statements or reports, the CTR should be filed under the new procedures for redacting information in material contracts or Rules 406 or 24b-2.In case of disagreements with the SEC’s general counsel about whether or not the information be kept confidential, the person will be allowed 10 days to file an action in the federal court. For more information, click here. To read about SEC’s press release on the “FAST ACT,” click here.

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Updated Guidance On Confidential Treatment In SEC Filings