In an arms race, each suffers the worst result if it disarms and the other side remains armed. However, if both sides are armed, they are not as well off as when both sides are disarmed. This is, of course, the classic “Prisoners’ Dilemma” game (see table below).
Much the same logic applies to the SEC’s insistence that issuers include the “Tandy Letter” language when responding to staff comments. This language forces unilateral disarmament by requiring issuers to state that they may not assert staff comments in any proceeding initiated by any person under the U.S. federal securities laws. See Is Forced Speech In Responding To Staff Comment Letters Inaccurate Speech? Disarmament is unilateral because class action plaintiffs’ attorneys are not required to disavow the use of comment letters in litigation. Indeed, one doesn’t have to search very far to find examples of the plaintiffs’ bar use of SEC comment letters:
Pa. Pub. Sch. Employees’ Ret. Sys. v. Bank of Am. Corp., 939 F. Supp. 2d 445 (S.D.N.Y. 2013) (“Specifically, Plaintiff argues that an SEC comment letter indicates that Cotty and Noski were knowingly responsible for the weakness in internal controls.”)
In re Bear Stearns Cos., Inc. Sec., Derivative, & ERISA Litig., 763 F. Supp. 2d 423, 522 (S.D.N.Y. 2011) (Complaint alleging that SEC comment letter stated that “material...
