SEC Charges Company and IR Execs with Regulation FD Selective Disclosure Violations
The SEC has filed a civil lawsuit against a large public company and three of its investor relations executives for selectively disclosing material nonpublic information to certain analysts. According to the complaint, when the IR executives learned that the company would significantly underperform consensus revenue estimates, they began a campaign of one-on-one calls with 20 analyst firms. During those calls, the SEC alleges that the execs knowingly or recklessly disclosed material nonpublic information about sales results in an effort to convince the analysts to lower estimates so that announced earnings would have a lesser market impact. The SEC accuses the defendants of violating Regulation FD, which prohibits public issuers from selectively disclosing material information without disclosing such information to the public.
Lessons for issuers: The SEC will enforce Regulation FD and will charge the individual executives responsible. Lessons for the buy side: Enhanced Regulation FD enforcement could have the unintended consequence of reducing publicly available information. Lessons for the sell side: Don’t ask questions where the answers could either handcuff you or make you liable for aiding and abetting.