The Detroit News editorializes on the new rules required by the Dodd-Frank financial regulation law to require publicly traded companies to report their use of select minerals that might come from the regions of Africa involved in the Congo war. The paper analyzes  “Another burden on automakers,” with the secondary headline, “Demanding the industry trace the origin of the metal used in car parts adds billions in costs”:

Proposed new rules requiring manufacturers — in particular auto parts suppliers — to identify the origin of some of the common minerals in their products could impose heavy additional costs on an industry that’s just now getting its head above water. The well-meaning goal of the rules is to limit the use of minerals from war-ravaged central Africa, but the expense could impose additional hardships here….

Rick Goss of the U.S. Information Technology Council, at a meeting on the issue in Washington last month, reportedly called the law a “sledgehammer” that could create what amounts to an embargo on mineral products from a major portion of Africa. Once the metal is refined in smelters, Goss was quoted as saying, there is no way of identifying the country of its origin. The only way to the assure the SEC that the metals don’t come from central Africa, he said, is to refuse to do business with anyone “who touches central Africa,” the Voice of America reported….

The law ought to be repealed. The auto industry and its suppliers shouldn’t be encumbered with the duty of solving the internal problems of central Africa.

At the very least, any regulations ought to allow manufacturers to report minerals as of an “indeterminate origin” until they are able to develop techniques for tracing and indentifying the raw materials in a more cost effective manner.

The National Association of Manufacturers submitted formal comments (here) to the Securities and Exchange Commission on March 2, estimating it will cost industry $9-16 billion to put the new regulations into effect.

The Detroit News reports, “Suppliers warned about ‘conflict minerals’“:

Washington — New disclosure rules for minerals from war-torn Africa could impose a major burden on auto suppliers.

Six of the largest automakers have warned suppliers to prepare for federal regulations requiring them to disclose whether they use “conflict minerals” in auto parts.

The joint letter from the heads of purchasing from General Motors Co., Ford Motor Co., Chrysler Group LLC, Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. told suppliers that the rule will require them to disclose the use of minerals from the Democratic Republic of the Congo and neighboring countries.

Conflict minerals are defined as tin, tantalum, tungsten, or gold. The Dodd-Frank Wall Street Reform and Consumer Protection Act required the Securities and Exchange Commission to propose regulations to require public companies to supply detailed reporting of their conflict mineral controls and sourcing. Challenged by the difficulty of the task — consider the complexity of global supply chains — the SEC recently delayed implementation of the rule until the second half of this year.

The National Association of Manufacturers submitted formal comments (here) to the SEC on March 2, estimating it will cost industry $9-16 billion to put the new regulations into effect and urging the SEC and Obama Administration to conduct a more rigorous analysis of the costs. The impact on supply chains — so important to the auto industry — is a key concern. As the NAM summarized in a briefing document for the SEC:

While the new reporting mandate only applies to companies required to report to the SEC, we expect these requirements will rapidly be passed through the entire supply chain. The requirements will effectively force suppliers not subject to SEC reporting to maintain extensive records of their source materials, costing them thousands of dollars to establish and maintain these records. The NAM believes that the proposed rule is a significant rulemaking and will cost U.S. industry between $9-16 billion to implement.

This memo from Dykema Gossett addresses the central issues, as well: “Conflict Minerals Act will have widespread impact on global supply chain.”

The National Association of Manufacturers just sent a “Key Vote” letter to the Senate opposing the Specter amendment to S. 3217, the financial regulation bill. Gist of the letter:

Manufacturers strongly support the U.S. Supreme Court’s 2008 Stoneridge decision, which protects manufacturers from unfairly being held liable in securities litigation solely because they might have deeper pockets than the company that engaged in securities fraud. The decision also reaffirmed that defendants may not be sued for aiding and abetting another corporation’s violations; only the Securities and Exchange Commission or certain state prosecutors may bring such actions.

The Specter amendment overturns Stoneridge and re-opens the door to frivolous lawsuits. Specifically, it does not require defendants to have “actual knowledge” that their conduct is assisting a fraud; rather, it requires only that defendants have “actual knowledge of the improper conduct underlying the violation.”

Hence, despite recent modifications to the amendment, defendants could still be subject to liability claims even when they have no knowledge that the conduct of their business partners is unlawful.

Exposing manufacturers and other defendants to increased liability claims in securities litigation could chill legitimate commerce, harm the economy, encourage frivolous claims, increase the costs of litigation, encourage coercive settlements and cost jobs.

The NAM uses “key votes” to assess a member of Congress’ voting record on manufacturing issues. The selection of votes is determined by a committee of representatives from member companies.

Earlier posts.

UPDATE (12:15 p.m.): The NAM joined other business associations in this separate letter opposing the Specter amendment. It notes the Senator’s efforts to gain support by modifying the language, but change does not mean improvement, in this case.

SA 3776, as modified, represents the third version of Senator Specter’s attempt to expand private liability under the securities laws. This version of his amendment requires “actual
knowledge of the improper conduct underlying the violation” and of “the role of the person in
assisting in such conduct.” But this formulation does not correct the flaws in his earlier versions.
It continues to require that the defendant have actual knowledge only of the primary violator’s
conduct—the “improper conduct” in the words of the amendment—and does not require that the
defendant know that this conduct was unlawful. This language continues to reflect a superficial
change from the original Specter legislation, which was met with heavy criticism because it
would have extended private liability even to those who provide such assistance “recklessly.”

Alex Pollock of the American Enterprise Institute writes about the Securities and Exchange Commission as an example of what happens when government by man — bureaucracy — supplants the rule of law. His comments are timely given today’s announcement on greenhouse gas regulation by Environmental Protection Agency, the most powerful regulatory agency in human history.

We tend to think of “bureaucracy” as meaning sluggish, complicated, unresponsive paperwork and process. But it has another, more threatening meaning: Rule by the bureaucrats, just as “aristocracy” is rule by the aristocrats—in other words, rule by unelected officers who impose their ideas on you, but cannot be voted out by you or anyone else. Bureaucracy in this sense has an inherent love of power and yearning for authority which cannot be questioned.

Consider the recent activities of the Securities and Exchange Commission.

The SEC criticized Goldman Sach’s synthetic CMO deal. Whatever one may think of the merits of the deal, should you be able to disagree with an attack on you by a bureaucracy? Goldman Sachs publicly disagreed. The SEC got the Justice Department to open a criminal investigation. Warren Buffett defended Goldman Sachs. The SEC announced it was investigating inadequate disclosures by Buffett’s company.

Coincidence? Or a message that you will certainly be punished if you dare to disagree with the bureaucrats?

It’s the nature of the bureaucratic beast. Once the EPA controls greenhouse gas emissions, you’ll be taking a risk by emitting disagreements as well as carbon dioxide.

Hat tip: Jonah Goldberg, National Review Online, who writes, “I can think of more sympathetic victims, but I think the point is sound.”

From a letter to Congress from the Coalition to Preserve Arbitration, which includes the National Association of Manufacturers:

The undersigned members of the Coalition to Preserve Arbitration strongly oppose the anti-arbitration provisions in S. 3217, the “Restoring American Financial Stability Act of 2010.” These unnecessary and unwarranted provisions will harm consumers and investors, while doing nothing to protect the strength and stability of the financial system. Therefore, we urge you to oppose these anti-arbitration provisions.

S. 3217 would authorize both the Securities and Exchange Commission (SEC) and newly created Consumer Financial Protection Bureau to regulate and even prohibit the use of arbitration in the securities and consumer financial products industries. See Secs. 921, 1028. In so doing, the bill threatens a time-honored dispute resolution system that allows investors and consumers to bring many financial claims that would otherwise be too costly to pursue in court.

The full list of supporting organizations that joined the letter:

American Bankers Association
American Financial Services Association
American Health Care Association
American Tort Reform Association
Assisted Living Federation of America
Auto Alliance
Consumer Bankers Association
International Franchise Association
International Institute for Conflict Prevention & Resolution
National Association of Home Builders
National Association of Manufacturers
Property Casualty Insurers Association of America
Securities Industry and Financial Markets Association
The Financial Services Roundtable
U.S. Chamber Institute for Legal Reform
U.S. Chamber of Commerce

From Associated Press, “Companies say health care costs hard to swallow“: “The health care overhaul will cost U.S. companies billions and make them more likely to drop prescription drug coverage for retirees because of a change in how the government subsidizes those benefits.”

The points of reference are reports by Deere & Company, Caterpillar and Valero that the companies will take charges totaling hundreds of millions of dollars because of the loss of a federal deduction for prescription drug benefits. The move should come as no surprise to lawmakers or the White House. More from AP:

Industry groups say they lobbied hard against the change in the tax rules before it was added to the health care law over the winter.

“It was in all of our letters and communications that went up to the Hill, and the companies were heavily involved in that,” said Dena Battle, a tax specialist with the National Association of Manufacturers.

Nationwide, companies would take a $14 billion hit on their financial statements if all of the roughly 3,500 companies receiving the subsidies continued to do so, according to a study by Towers Watson, a human resources consulting firm.

The Wall Street Journal reports administration officials saying the companies are exaggerating the impact. From “Companies Take Health-Care Charges“:

“During the past year, I have heard from CEOs from across the country that skyrocketing premiums are crippling the competitiveness of their companies,” said Commerce Secretary Gary Locke. “It is simply not responsible to suggest that the new health-care law is bad for business.”

In the litany of efforts to marginalize critics of the health care bill, that’s pretty mild, but please, Mr. Secretary. These companies are not issuing inflammatory news releases, they’re making official accounting judgments that are reported to the SEC. Making misleading or false statements, THAT would be irresponsible.

The Senate Republican caucus highlighted Caterpillar’s $100 million hit, recalling President Obama’s appearance at the company last year in support of the stimulus bill:

PRESIDENT OBAMA: “So what’s happening at this company tells us a larger story about what’s happening with our nation’s economy, because, in many ways, you can measure America’s bottom line by looking at Caterpillar’s bottom line. (President Obama, Remarks To Caterpillar Employees, 2/12/09)

On Jan. 27, the Securities and Exchange Commission (SEC) voted 3-2 to issue interpretive guidance instructing publicly traded companies to inform investors of the possible material impact of governmental reactions to possible climate change. In a statement, SEC Chairman Mary Schapiro said, “We are not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics. Today’s guidance will help to ensure that our disclosure rules are consistently applied.” According to the SEC’s news release, the four areas that companies must take into account are:

• Impact of Legislation and Regulation
• Impact of International Accords
• Indirect Consequences of Regulation or Business Trends
• Physical Impacts of Climate Change

Commissioner Kathleen Casey, a Republican, strenuously objected: “I can only conclude that the purpose of this release is to place the imprimatur of the commission on the agenda of the social and environmental policy lobby, an agenda that falls outside of our expertise and beyond our fundamental mission of investor protection.” For the other commissioners’ statements, go to the SEC statement page.

There’s no doubt the SEC’s disclosure requirements will exacerbate the reputational risk that the litigation industry seeks to exploit, creating another point of attack in the public relations campaigns that now accompany high-profile environmental lawsuits. James Freeman, a Wall Street Journal editorial writer, called the guidance “a litigation breeder” that would consume SEC time and resources best spent on real priorities. (See WSJ News Hub video.) The New York Times summarized in a predictable editorial, “The commission, which took pains to say that it was not expressing an opinion on whether the world’s climate was changing, has long required companies to reveal financial or legal impacts from other environmental challenges — potential liabilities under the Superfund law or the Clean Water Act, for instance. It has also been petitioned by investor groups and environmentalists to add climate change to the list of those challenges.”

Yes, and that list of petitioners includes familiar promoters of litigation shakedowns against business: The California Public Employees’ Retirement System (CalPERS), Environmental Defense Fund, Friends of the Earth, California Treasurer Bill Lockyer, and New York Attorney General Andrew Cuomo among others. (The Ceres investment group, CalPERS and the Environmental Defense Fund issued a joint news release and Pax World Management also praised the SEC.) See their original petition (Sep. 18, 2007) to the SEC, and the Supplemental petition (Jun. 12, 2008).

Freeman suggests the Obama Administration is trying to achieve through its executive branch appointments what it cannot achieve in Congress, that is, implementation of regulatory regime to control greenhouse gas emissions. Probably so. What’s not subjec to dispute is that the SEC guidance will impose additional costs on companies, draw SEC resources away from other, more pressing enforcement needs, and serve the interests of the litigation industry.

• Washington Post, SEC to require disclosure of climate change risks
• Wall Street Journal “SEC Votes for Corporate Disclosure of Climate Change Risk”

From today’s Wall Street Journal, “The Firm,” an editorial urging the Justice Department to continue its investigations into the crimes:

The firm perfected what’s known as a “strike suit,” in which a corporation is sued over a dubious claim of “fraud” merely when its stock price falls. Milberg now admits that, over 30 years, seven former partners (three remain unnamed) paid secret kickbacks to plaintiffs in 165 suits. Those suits earned the firm some $240 million in fees.

The plea deal itself reveals how elaborate these strike-suit cons were. In addition to paying plaintiffs, Milberg was also funneling kickbacks to New York-area stockbrokers who referred clients for Milberg suits. One of these was Paul L. Tullman, who received some $9 million in finder’s fees over 24 years. Milberg Weiss was also illegally paying at least one class-action expert witness, a man named John Torkelsen, on a contingency-fee basis. Torkelsen, now serving jail time for defrauding the government, was famous for providing the court with estimates of the “damages” owed to shareholders. Since he was getting a cut, he had every incentive to pump up the numbers.

In short, Milberg was a corrupt enterprise that perpetrated a vast fraud on our system of justice.

While the Journal calls for continued Justice Department enforcement, Paul Kamenar of the Washington Legal Foundation asks, where’s the Securities Exchange Commission? Writing in The Examiner, he argues:

While Reps. John Boehner and Lamar Smith recently have called for congressional investigations into this massive criminal racket that affected the markets, the obvious question is, where has the Securities and Exchange Commission been in all of this?  Ironically, in 1995, SEC Chairman Christopher Cox  — then Rep. Cox — was responsible for enacting the Private Securities Litigation Reform Act to curb these class-action abuses. Yet the SEC’s silence on these harmful criminal practices — which Lerach unapologetically admitted was “industry practice” by the class-action bar — has been deafening.

Indeed, after being lobbied by Lerach last year, the SEC tried to push the Justice Department to side with the greedy plaintiffs’ bar in the U.S. Supreme Court case Stoneridge v. Scientific-Atlanta.

Congressional leadership certainly has shown no inclination toward oversight.