I just blogged about 9 things you should know about the 50 year history behind the “Corporation Finance Interpretations,” formerly known as the “Compliance and Disclosure Interpretations” – so that the “CDIs” are now known as the “CFIs.” Below is some extra gloss on this history from John Huber, who served as Corp Fin’s Director in the 1980s:
“I began as an examiner in Branch #2 under Vasil Simmons, as branch chief, in January 1975. Even though examiners talked with registrants and their counsel about what the rules, regulations and statutes required and answered their questions on telephone conversations, we did not typically report those interps to the Chief Counsel’s Office. While examiners knew that telephone interps existed, the interps themselves were not widely shared with the review staff. They were in the purview of the Chief Counsel’s Office.
This process changed with integration. The Office of Disclosure Policy issued interps on rulemaking because they were the “contact person” on releases for questions from registrants and their counsel. Disclosure Policy coordinated with the Chief Counsel’s Office on interpretations that were being provided. Once the Office of Chief Counsel agreed, they became a telephone interp.
Thus, telephone interps expanded in scope and became more generalized in their impact on registrants. They weren’t just a statement by a staff person about a particular filing with no precedential value, they were a position of the Division. When I was the Director, Peter Romeo as Chief Counsel and Bill Morley who succeeded him, each reviewed every telephone interp with the same level of care as they reviewed every no action letter before it was issued.
There has always been a debate about the precedential value of telephone interps because they were not publicly available. This is ironic. The Division that is charged with promoting transparency in corporate disclosures was not being transparent with respect to its own interpretations.
When John White became Director of Corp Fin in 2006, one of his initiatives was to make the telephone interps more easily publicly available. He directed Tom Kim, his Chief Counsel, to review and issue the interps that the Staff continued to support as Compliance & Disclosure Interpretations (C&DIs), and he also directed Wayne Carnall, his Chief Accountant, to do the same with Regulation S-X, which became the Financial Reporting Manual (FRM).
Once publicly issued and posted on the SEC’s website, the C&DIs and the FRM clearly reflected the Division’s interpretive positions. For example, many comment letters cite, as authority, the C&DIs and the FRM. The new change in nomenclature for the C&DIs is not important. In the context of the review of a filing, the Staff views the C&DIs and the FRM as authoritative.
On the other hand, in litigation, SEC Staff interpretations, in whatever form or format, are at the low end of the priority scale. First comes the statute, then a rule, then an interpretive release from the Commission, then an interpretive release from the Staff (and I wrote several of them) and finally no-action letters and C&DIs or CFIs.
However, to state the obvious, it is rare for a litigation matter to turn on an interpretation of a rule that has already been the subject of an interpretation by the Staff that is on point. But it is commonplace for filing reviews and the interactions between public companies and the Staff to focus on the Staff’s positions as expressed in these publicly stated interpretations.”
