Liability Protection Proposed for SEC XBRL An Illusion?

Here is a nice piece on liability issues for XBRL data in the proposed ruling put out by Cleary Gottlieb Steen & Hamilton LLP. In particular, they talk a bit about the dual liability of XBRL data compared with the "viewable form". Key graphs below [my emphasis]. As we've been saying to folks in person we think it is worth your while to download the proposal and consider commenting to the SEC.

'Although the proposed rules exempt the machine-readable "interactive data file" from liability as described above, proposed Rule 406(b) of Regulation S-T provides that "interactive data in viewable form" will be subject to liability under the securities laws to the same extent as the related official filing. As proposed, "interactive data in viewable form" is defined as the financial statements and other information displayed when the interactive data file is converted to human-readable format using a viewer provided by the SEC in a manner that results in such information being displayed identically in all material respects to the corresponding financial information contained in the related official filing.

'Because the definition only applies to viewable financial information that is in fact displayed identically in all material respects to the financial information in the traditional filing, proposed Rule 406(b) by its terms appears to stand for the unremarkable proposition that viewable financial data that is substantially identical to the financial data in the traditional format filing will be subject to same liability. Surprisingly, the proposed rules do not expressly address the liability that would attach to viewable information that is not displayed identically in all material respects to the data in the related official filing. We expect comment letters on the proposed rules will seek a clear statement from the SEC that the liability protection afforded by proposed Rule 406(c) extends not only to the interactive data file but also to the viewable information resulting from processing that file, whether that information is processed using the SEC's viewing software or otherwise. Absent such an interpretation, the protections afforded to the interactive data file would be illusory, because a plaintiff would simply base its cause of action on the viewable information created by processing the interactive data file.'

-- Ed Hodder

Comments

[Colm O hAonghusa]

The illusion being created here ignores the fact that

" using a viewer provided by the SEC in a manner that results in such information being displayed identically in all material respects to the corresponding financial information contained in the related official filing."

is not the same as

"..whether that information is processed using the SEC's viewing software or otherwise."

The SEC, quite rightly, specifies that it will be relying on its own viewer, and not any old viewer.