Demanding Substance Or Form? The SEC's Plain English Handbook As A Basis For Securities Violations

ABSTRACTIn 1998, the United States Securities and Exchange Commission ("SEC" or "Commission") released a style manual titled "The Plain English Handbook." The culmination of a drive by its Chairman, Arthur Levitt, the Handbook drew upon the rules of grammar, best industry practice, and even the support of billionaire Warren Buffett in calling for a layman's translation of corporate disclosure documents.To varying degrees, commentators noted the significance of the Handbook. Initial textual studies provided mixed results. The press marveled at its novelty but securities regulation experts were less sanguine, chiding Commission members for naming themselves "language czars of the universe."Meanwhile, the cause of corporate disclosure-a mission long defined by federal case law-continued its second phase as the SEC, the courts, and stock issuers sought to strike a balance between financial expertise and consumer satisfaction. From this effort came the separate but related causes of evaluating substantive content and delivering it in good faith. These causes eventually morphed, however, forcing jurists to locate further authority animating the remedial securities laws. Consequentially the Handbook, at times, tipped this balance of corporate disclosure.Accordingly, this Article traces the gradual yet impressive growth in importance of a nearly 15-year-old exhortation. To be sure, the authoritative value of a style manual is a topic of great moment: In the fall of 2012, changes implemented by the controversial federal healthcare law required insurers to publish marketing materials in "plain language." Further, the Commission itself is gradually expanding the Handbook's application to additional mutual fund disclosures, proxy materials, and investment adviser communications. Those commenting on the rule's primacy will undoubtedly note the lessons of indirect agency rulemaking. Of more immediate consideration, this Article seeks to examine the subtle means by which a call for simplicity may have become grounds for violations of securities law, in the eyes of the government and others. Ultimately, the SEC's continuing emphasis on simplicity begs the question of which shareholder communications are being read at all.TABLE OF CONTENTSINTRODUCTION 96I. THE HANDBOOK'S SPECIFICS 98A. Background and Stated Mission 98B. Handbook Outline 99C. Enabling SEC Rulemaking 100II. BACKGROUND: ERAS OF STATUTORY DISCLOSURE 102A. The Post-Statutory Period (1933-1980) 1021. Legislative History 1022. Paternalism and Its Consequences 105B. The Period of Accommodation (c. 1980-present) 108III. The Emerging Handbook Case Law 1 1 1A. The Case Law's Early Years 1 12B. Taking Center Stage 1 14IV. ANALYSIS OF HANDBOOK INFLUENCE 1 17CONCLUSION: ON SIMPLICITY AND CORPORATIONS 121IntroductionIn 1998, the United States Securities and Exchange Commission ("SEC" or "Commission") adopted a seemingly harmless style manual titled "A Plain English Handbook" ("Handbook").1 The manual was designed to urge issuers of public securities to create more meaningful disclosures in documents such as prospectuses. …