At Practising Law Institute’s session, “The S.E.C. Speaks,” Commissioner Troy A. Paredes commented on the increased complexity of mandatory disclosures, and the increased quantity of disclosures. Paredes noted that, “The information overload concern is that investors will have so much information available to them that they will sometimes be unable to distinguish what is important from what is not.” Often information, especially risk factors, may be added just as a preventive measure, to ensure that should litigation ensue, the issuer will not be accused of failing to mention a potential risk.
The JOBS Act mandates that the Commission conduct a study of the requirements contained in Regulation S-K, Also, the disclosure accommodations provided to Emerging Growth Companies by the JOBS Act lead one to consider the accommodations available to smaller public companies. This is an opportune time to revisit disclosure requirements for reporting issuers and the format of these required disclosures. Paredes suggests that accessible presentation formats (such as charts, graphs, tables, etc.) should be encouraged. This is consistent with the findings of the recent financial literacy study, which noted that investors prefer summaries and graphic presentations. It will be interesting to see whether Staff comments will encourage registrants to eliminate boilerplate and pare down the number of risk factors to those truly essential to an investor’s understanding of the circumstances that would impact a registrant’s business and financial results.