Oct. 30, 2023
As we pore over the intricate nuances of the proposed SEC Release No. IA-6240; File No. S7-04-23, it becomes increasingly apparent that the regulation raises several legal challenges. First and foremost, there appears to be a fundamental conflict between this proposed rule and existing securities laws governing financial reporting standards. According to Section 13(a) of the Securities Exchange Act of 1934, publicly traded companies must submit annual reports containing financial statements within fourteen days following their fiscal years' conclusion. This provision explicitly states that these filings should reflect data up until the end of such periods. In contrast, the suggested amendment requires RICs to supply audited financial statements ahead of shareholder meetings, even though such events commonly occur months after calendar year ends. As a result, the SEC seems to be asking RICs to provide two separate sets of accounting records, one compliant with federal law and another tailored specifically for the regulator's demands, creating unnecessary confusion and duplicating efforts. Secondly, there exists a reasonable argument that the proposed rule contradicts basic principles of fairness and procedural due process enshrined in the U.S Constitution. It effectively imposes retroactive penalties, compelling entities to rectify historical missteps long after they initially occurred. Given the far-reaching implications of such a drastic shift, we believe that this particular aspect would likely face intense scrutiny from the courts, possibly rendering the entire edict null and void. Hence, it is crucial that the Commission closely examine the legality and feasibility of the proposed changes before implementing them, lest it expose itself to considerable legal jeopardy down the line.