Did Toyota wait too long to disclose its subpoena?

This morning, a lot of attention will be focused on Toyota Motors (TM) CEO Akio Toyoda, who will start testifying around 11 am est before the House Oversight Committee. Given this, we decided to take a look at both Toyota’s recent filings and those of some other companies and came up with some interesting finds. This post deals with a specific Toyota filing. Later today, we’ll post our other finds.

At the top of the list was this 6-K filed by Toyota on Monday. While the news of the grand jury subpoena from the Southern District of New York — as a quick reminder, that’s a criminal issue — was reported, we were more interested in the timing of the 6K. Specifically, how did Toyota receive a grand jury subpoena on Feb. 8 and wait until Feb. 22 to disclose this to their investors? After checking with a few experts, including The Corporate Counsel, Broc Romanek, it became increasingly clear that the disclosure rules for foreign-based companies — even those whose ADRs trade here in the US — are pretty vague. So vague in fact that one attorney we spoke to said that the SEC isn’t even really aware of them!

Now if Toyota shares traded here, the rules on something like this — it seems hard to argue that a grand jury subpoena isn’t material — would be pretty clear: they would have four business days to disclose this in an 8K, which probably would have required disclosure by Feb. 12, or perhaps Feb. 16 at the latest, to account for the President’s Day holiday. But Toyota waited a full extra week. Yesterday afternoon, Broc put us in touch with Walter Van Dorn Jr., a partner at Sonnenschein Nath & Rosenthal, and he said the SEC rules essentially say that the company is required to file promptly with the home country and with the SEC after that. “But the SEC doesn’t know exactly what those rules are,” Van Dorn Jr. said, which means that even if Toyota took its time to let investors know about the subpoena, the SEC wouldn’t necessarily know this.

Although we left several messages with the SEC. we’ve yet to hear back from them. But Kazu Tomita, the general manager for the Tokyo Stock Exchange’s New York City office confirmed that the rules basically say that the company is required to disclose the information “as soon as possible” or “as soon as they recognize the fact”. Though he declined to comment on the specifics here, he suggested that the delay could be due to the time it took for the New York issued subpoena to get to Toyota’s headquarters in Tokyo and then for Toyota to file the 6K with the SEC.

That seems like a bit of a stretch to us, unless the subpoena was sent by carrier pigeon to Tokyo — something we’re trying to confirm with New York’s Southern District. Not to mention the fact that if the SEC really doesn’t know the rules for this sort of disclosure, how are investors supposed to trust anything that is disclosed in 6Ks?

UPDATE 12:15 pm: Mio Maeshima, an old friend of mine in Tokyo who served as my translator when I had a journalism fellowship there, checked the TSE’s website and found that Toyota also filed the subpoena disclosure with the TSE on Feb. 22. But given the rules that Mio translated for me — and the requirement that Toyota was required to notify investors of “a government ministry or agency’s accusation of law violation against the company” — it still raises questions on why it took so long for Toyota to disclose this to investors.

Image source: Nick Ut/Associated Press