Paper Industry Loses Bid to Review SEC’s Paperless Report Rule

(CN) – The D.C. Circuit rejected a challenge brought by a paper-industry-backed consumer group, Twin Rivers Paper Company, against a Securities and Exchange Commission rule that allows investment companies to distribute shareholder reports electronically and mail paper copies upon request.

Twin Rivers is a non-profit membership coalition called Consumer Action which represents the interests of the American paper industry. The Maine-based company manufactures specialty paper for various markets and applications.

Since 2018, the SEC adopted rule 30e-3 allowing investment companies, such as mutual funds, to post investor reports online, claiming the change would save investment funds about $140 million annually and that “many investors would prefer enhanced availability of fund information on the internet.” The rule stipulates that investment companies must continue to deliver paper copies of reports until Jan. 1, 2021 and include a statement informing investors of the change to electronic format.

The petition challenged the rule on claims that it threatened consumer access to crucial investor information and that the SEC did not properly take into account investors who prefer reports in paper form.

Judge Gregory C. Katsas wrote for the three-judge panel, which determined that Twin Rivers and other petitioners lacked constitutional standing because they failed to prove that the coalition’s members have or will suffer any injury despite their assertions that the rule would put senior and minorities at a disadvantage.

Furthermore, the petition was denied because Twin Rivers asserted interests “beyond those arguably protected or regulated by the securities laws.” More specifically, the ruling notes that the petitioners are against rule 30e-3, alleging the legislation violates the Securities Act, the Securities Exchange Act, and the Investment Company Act, because the rule reduces the demand for paper products. But the interest in selling paper is not protected under securities laws, Judge Katsas wrote.

"As sellers of paper, the industry petitioners are not intended beneficiaries of the securities laws,” the ruling states.

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