Qualitative Materiality Under the SEC Proxy Rules and the Fifth Amendment: A Disclosure Accident Waiting to Happen or Two Ships Passing in the Night?
95 Pages Posted: 1 Feb 2010
Date Written: 1992
The Securities and Exchange Commission has at various times required disclosure of “qualitatively material” information relating to the competence and integrity of corporate managers. In so doing, however, the SEC has never required the disclosure of unadjudicated business crimes committed by a candidate for a corporate directorship. The Commission has been solicitous of the possible Fifth Amendment implications of such disclosure, but this Article argues that it is now time to require the director-candidate who knows he is the subject or target of a contemplated criminal proceeding to make public that fact at the time he seeks the shareholder's vote.
The author first reviews the general disclosure scheme of the federal securities laws and then examines the history of qualitative materiality. The Article discusses the Fifth Amendment problems associated with disclosure of unadjudicated illegal conduct and suggests that these problems are more specious than real. The Article concludes that the SEC should adopt a line item proxy disclosure rule dealing with unadjudicated illegal activity which will furnish the investor with sufficient information to make an informed voting decision while minimizing the risk that the candidate's Fifth Amendment privilege will be violated.
Keywords: Securities and Exchange Commission
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