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SALT LAKE CITY — Utah's attorney general is leading a coalition of states in challenging what he calls a "burdensome" federal regulation that would require companies to disclose why they are offering stock buybacks to investors.
The rule, which the Securities and Exchange Commission approved in May and will go into effect for some companies later this year, requires public companies to explain their reasoning for issuing stock buybacks, a common practice that can increase the value of a company's shares and reward shareholders.
Attorney General Sean Reyes, a Republican, argues that the disclosure requirement will discourage buybacks because it could give competitors insight into a company's success.
The U.S. Chamber of Commerce, a powerful business lobby group, filed a suit against the rule in May, claiming the SEC didn't weigh the costs and benefits of the rule, which the Chamber argue violates companies' free speech rights. Reyes filed an amicus court brief in support of the lawsuit, along with attorneys general from 25 other conservative states.
"We are leading this coalition of states in opposition to the SEC buyback rule because the federal government again overreaches with a shortsighted and misguided policy," Reyes stated on Tuesday. "This rule will have severe consequences not only for investors and companies, but for everyday Americans and retirement account holders. We applaud the advocacy of the U.S. Chamber in this matter and join with it in standing up for the people of America."
Reyes argued that the regulation will make buybacks less appealing to companies, and in turn, damage investors and the stock market as a whole.
In a statement prior to the vote on the new buyback regulation, SEC Chairman Gary Gensler said he supported the rule because it increases "transparency and integrity" in the process and helps investors make informed decisions.
"Through these disclosures, investors will be able to better assess issuer buyback programs," he said. "The disclosures will also help lessen some of the information asymmetries inherent between issuers and investors in buybacks. ... I think the final rule will improve investors' visibility into buyback programs and their transaction history. That's good for investors, issuers and the markets."
Reyes has also filed an amicus brief in a separate case against the SEC, over the regulator's decision to roll back a 2020 rule concerning businesses that advise shareholders on how they should vote. He alleges the rollback will decrease transparency and allow large proxy advise companies to push political objectives such as environmental, social and governance factors.
Environmental, social and governance investing includes considering how a company's share price could be affected by its impact on the environment, or its leadership. Reyes has been consistently opposed to that type of investing, which he blasted as an "undemocratic tax" on the economy in an appearance before the House Committee on Oversight and Accountability in May.
