It's important for lawyers who may be drafting these documents to understand that use of language that cleverly obscures the real story or of highly equivocal language seeking to absolve their clients of all real or imagined conflicts or bad practices will be self-defeating.
Commissioner Elisse B. Walter, July 21, 2010
PLAIN ENGLISH AND THE SEC
Rules requiring plain English and related adopting releases
- Adopting Release: Asset-Backed Securities
This release discusses registration, disclosure, and reporting requirements for asset-backed securities, and states that "even the most complex structures can be described clearly and accurately without resorting to overly legalistic presentations."
- Rule 421: Presentation of Information in Prospectuses
This rule requires all information in a prospectus to be written in a clear, concise and understandable manner. The front and back covers, the risk factors, and the summary section must be written using plain English principles for the organization, language, and design.
- Adopting Release: Plain English Disclosure
This release discusses Rule 421 and related amendments.
Adopting Release: Securities Offering Reform
Among other things, this package of rules requires risk factor disclosure in annual reports on Form 10-K to be written in plain English.
Item 406 of Regulation S-K
This item, which requires public companies to disclose whether they have a code of ethics for their executive officers, defines code of ethics to include written standards that are reasonably designed to ... promote ... [f]ull, fair, accurate, timely, and understandable disclosure ....
- Adopting Release: Amendments to Form ADV
These amendments require investment advisers to provide plain English narrative brochures to clients and prospective clients describing (among other things) their business practices, conflicts of interest, fees, and disciplinary history.
SEC guidance regarding plain English
Summarizing the findings of a study mandated by the Dodd-Frank Act, the staff notes that "investors prefer that disclosures be written in clear, concise, understandable language, using bullet points, tables, charts, and/or graphs" and "investors favor the use of a summary document containing key information about an investment product or service."
This report recommends, among other things, that the SEC require public companies to include an executive summary at the beginning of each annual report and quarterly report that summarizes, in plain English, the most important information about the company and provides context for the disclosures that follow.
Sample quote: [C]areful drafting consistent with plain English principles could result in a shorter, more concise and effective discussion that complies with our rules.
Speeches and other public statements
Sample quote: [I]nvestors have to dig through pages of legalese to obtain the key information theyre after.
Sample quote: At the SEC . . . were dead serious about plain English.
- John W. White, Wheres the Analysis? (October 9, 2007)
Sample quote: Disclosure can fail in either of two different ways — it can be presented clearly and understandably without being meaningful or responsive to disclosure requirements or, conversely, it can be responsive in content without being clear and understandable.
- Christopher Cox, Address to the Investment Company Institutes 2007 General Membership Meeting (May 10, 2007)
Sample quote: [T]he best information doesnt always mean the most information. The best information means disclosure that is readily accessible, easily understandable, and comparable from one fund to another.
- John W. White, Keeping the Promises of Leadership and Teamwork: The 2007 Proxy Season and Executive Compensation Disclosures (May 3, 2007)
Sample quote: All the information in the world is of no use if no one can understand it.
Christopher Cox, Closing Remarks to the Second Annual Corporate Governance Summit (March 23, 2007)
Sample quote: The SEC is dead serious about shedding 70 years of accumulated bad habits in writing. We are well aware that our retail disclosure system has devolved into a self-serving exercise for issuers, underwriters, and their lawyers. No company that serves retail customers would seek to draw their attention to important subjects with an 80-page doorstop. Nor should we, if we are to continue to deserve our title as the investors advocate.
Christopher Cox, Address to the 2007 Corporate Counsel Institute (March 8, 2007)
Sample quote: [T]he SEC is waging an all-out war on complexity.
- Lori Schock, Acting Director of the Office of Investor Education and Assistance, Feedback from Individual Investors on Disclosure (January 19, 2007)
Sample quote: [I]nvestors consistently have been telling us that disclosures should contain language that the average investor, not the average lawyer, can read and understand.
- John W. White, Principles Matter (September 6, 2006)
Sample quote: Write for investors, not lawyers.
- Christopher Cox, Improving Financial Disclosure for Individual Investors (May 3, 2006)
Sample quote: [I]n order for investors to make sound decisions, the sellers information has to be understandable, accessible, and accurate.
- Cynthia Glassman, Does SEC Disclosure Eschew Obfuscation? Res Ipsa Loquitur! (November 4, 2005)
Sample quote: Very simply put, it is my perception that disclosing parties and their lawyers — be they mutual funds, broker-dealers, investment advisers, or operating companies — view their disclosure obligations with an eye toward limiting their potential liability. Thus, the disclosures that they make, while often voluminous, do not necessarily provide information in a helpful, informative manner. In contrast, the recipients want timely, complete, and useful information that is readily understandable.
- Arthur Levitt, Fulfilling the Promise of Disclosure (July 23, 1997)
Sample quote: It is possible that no document on Earth has committed as many sins against clear language as the prospectus. The prose trips off the tongue like peanut butter. Poetry seems to be reserved for claims about performance, and conciseness for discussions about fees.