Confidential Treatment: Redacting SEC Filings Legally

Key Takeaways

• An SEC confidential treatment request lets a company redact sensitive terms from filed documents legally.
• Rules 406 and 24b-2 are the exclusive means to object to public release of required information.
• Since 2019 and 2020, companies can omit immaterial confidential terms without a formal application.
• Protection runs for a set period, often up to 10 years, shielding the unredacted version from FOIA release.

What It Is

Public companies must file many documents with the SEC, including material contracts as exhibits to reports like the Form 10-K. Some of those documents contain information a company reasonably wants to keep private, such as pricing, royalty rates, or customer names.

Securities Act Rule 406 and Exchange Act Rule 24b-2 provide the exclusive way to object to the public release of information that the rules otherwise require to be filed. Through a confidential treatment request, a company files the document but redacts specific terms and asks the SEC to protect the omitted information from public disclosure for a stated period.

The Intuition

Disclosure rules exist to give investors the information they need. But blanket disclosure can also force a company to hand competitors a roadmap, such as the exact prices in a key supply contract. That helps no one but rivals.

Confidential treatment balances those interests. Investors still see the contract and its material terms. The company keeps secret only the narrow pieces that are commercially sensitive and not material to an investment decision. The SEC reviews the request to make sure the redactions are justified and limited. The system tries to protect genuine business secrets without letting companies hide information investors actually need.

How an SEC Confidential Treatment Request Works

Under the traditional process, a company submits a confidential treatment application that lays out the legal and factual basis for each redaction. The application identifies the Freedom of Information Act exemption the company relies on, explains why that exemption applies, justifies the time period requested, and argues that the omitted information is not material to investors. The company also gives the SEC a complete, unredacted copy.

If the SEC grants the request, it issues a confidential treatment order. That order protects the unredacted version held by the SEC from public release under FOIA for the granted period, which typically runs no longer than 10 years and can be extended by reapplying. The public version of the filing shows the document with the approved terms blacked out.

In March 2019 and November 2020, the SEC changed its exhibit rules. Under the newer redacted exhibit rules, a company may omit information from many exhibits without filing a formal application, provided the information is both not material and the kind the company customarily and actually treats as private. The company marks the redactions, explains in the filing that it omitted immaterial confidential information, and follows the procedures in Regulation S-K and parallel rules. Formal applications under Rules 406 and 24b-2 remain available and necessary in other situations.

Worked Example

Suppose a company signs a major supply agreement and must file it as an exhibit to its next annual report. The contract is material, so the document itself must be filed, but it contains specific unit prices and volume discounts that would help competitors if disclosed.

Under the redacted exhibit rules, the company can file the contract with the pricing terms blacked out, as long as those terms are not material to investors and the company genuinely treats them as confidential. It marks each redaction and adds a note in the filing stating that immaterial confidential information has been omitted. Investors still see the contract's structure, parties, and key obligations. Competitors do not see the exact prices. If the omitted terms were material or fell outside the rule, the company would instead file a formal confidential treatment request and ask the SEC for an order protecting the information.

Common Mistakes

1. Redacting material information. Confidential treatment covers only information that is not material to investors. Hiding something investors need is not permitted and can draw staff scrutiny.

2. Assuming protection is permanent. A confidential treatment order lasts a set period, often up to 10 years. To keep protection beyond that, the company must reapply.

3. Skipping the FOIA analysis in a formal application. A traditional application must identify the FOIA exemption relied on and explain why it applies. A weak basis can lead to denial.

4. Confusing the two paths. The newer redacted exhibit rules let companies omit immaterial terms without a formal filing. Other situations still require a full application under Rules 406 and 24b-2.

5. Over-redacting routine terms. Blacking out information a company does not actually treat as confidential, or that is standard boilerplate, invites comment letters and reputational questions.

Frequently Asked Questions

What is an SEC confidential treatment request in simple terms? It is how a company asks the SEC to let it hide sensitive terms in a filed document. The company files the document but blacks out narrow, non-material details like pricing.

How does an SEC confidential treatment request affect investors? It removes some commercially sensitive details from public view while keeping the material information visible. Investors should still see everything that matters to a decision, only the truly immaterial secrets are redacted.

What is a real-world example of a confidential treatment request? A company filing a major supply contract can redact the specific unit prices, since those are not material to investors but would help competitors, while still disclosing the contract's structure and key terms.

How can companies use confidential treatment effectively? Redact only information that is genuinely immaterial and treated as confidential, follow the current redacted exhibit rules, and use a formal application when the situation requires one. Avoid over-redacting routine terms.

How is a confidential treatment request different from the comment letter process? A confidential treatment request seeks permission to redact sensitive information from a filing. The comment letter process is the staff's separate review of whether a filing's disclosure is clear and complete.

Sources

1. U.S. Securities and Exchange Commission. "Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2." https://www.sec.gov/rules-regulations/staff-guidance/disclosure-guidance/corpfinconfidential-treatment-applicationshtm
2. Skadden, Arps, Slate, Meagher & Flom LLP. "Guide to Maintaining the Confidentiality of Commercially Sensitive Information in Agreements Filed With the SEC, 2024 Update." https://www.skadden.com/insights/publications/2024/01/guide-to-maintaining-the-confidentiality
3. Harvard Law School Forum on Corporate Governance. "Confidential Treatment Applications and SEC Disclosure Guidance." https://corpgov.law.harvard.edu/2020/02/05/confidential-treatment-applications-and-sec-disclosure-guidance/
4. Wake Forest Law Review. "Silent Treatment: The Increase in Confidential Treatment Redactions in SEC Filings." https://www.wakeforestlawreview.com/2023/04/silent-treatment-the-increase-in-confidential-treatment-redactions-in-sec-filings/

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.