The Regulator in Robes: Examining the SEC and the Delaware Court of Chancery’s Parallel Disclosure Regimes
By: David Friedman
The Delaware Court of Chancery is a unique court that specializes in transactional jurisprudence. Due to Chancery’s expertise in and exposure to corporate litigation, its decisions act as “rules” for most corporate actors. However, Chancery is not the only actor in the corporate law space, nor is it the most powerful. The SEC can—and has—intervened in state law by creating federal corporate law. In recent years, Chancery has issued many decisions in an area of corporate law—the disclosure of material information to shareholders—long associated with the SEC, with implications for actors determining their compliance with both “rulemaking” regimes.
This Note uses Chancery decisions addressing the disclosure of potential conflicts underlying a financial advisor’s work in change-of-control transactions as a case study to highlight the substantive and procedural differences in SEC and Chancery disclosure “rules” and “rulemaking.” This Note describes how Chancery has filled in gaps in SEC regulations on disclosing potential advisor conflicts. It also compares the SEC’s and Chancery’s rulemaking procedures to reveal two very different methods of regulating disclosure in change-of-control transactions.
While both the SEC and Chancery have comparative institutional advantages, there are costs to maintaining two independent disclosure “regulators” and increased harmonization would be valuable. This Note evaluates potential solutions to better reconcile the purpose of the SEC and the reality of Chancery’s active involvement in determining disclosure obligations. It concludes that the SEC should codify Chancery’s decisions, subjecting them to a formal rulemaking process.
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