DLA Piper | Publications | SEC updates Regulation FD guidance
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NEWS & INSIGHTS
Publications
26 AUG 2009
SEC updates Regulation FD guidance
CORPORATE GOVERNANCE ALERT
Mark F. Hoffman Nicolas Morgan
The SEC has updated its Compliance and Disclosure Interpretations (C&DIs) relating to its Regulation FD guidance. The new guidance may be accompanied by renewed interest in the regulation by the SEC's Enforcement Division after four years of relative silence. Regulation FD requires issuers that disclose any material nonpublic information regarding the issuer or its securities to certain persons make prompt public disclosure of that same information. Regulation FD generally covers disclosures to broker-dealers and their associates, investment advisers and investment companies, and shareholders of the issuer under circumstances in which it is reasonably foreseeable that the shareholder will buy or sell the issuer’s stock based on the information. Regulation FD does not apply to disclosures: to persons who owe a duty of trust or confidence to the issuer; to entities whose primary business is issuing credit ratings; or in connection with a registered securities offering under the Securities Act, if the disclosure is made in the manner described in Regulation FD (e.g., through a registration statement or an oral communication in connection with a registered offering after filing the registration statement). The SEC’s new Regulation FD guidance, issued on August 14, 2009, addresses the following: 1. An issuer can selectively confirm a forecast that it has previously made to the public without
http://www.dlapiper.com/sec-updates-regulation-fd-guidance/
8/26/2009
DLA Piper | Publications | SEC updates Regulation FD guidance
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triggering public reporting requirements under Regulation FD; however, the issuer needs carefully to consider whether the confirmation itself conveys any information beyond the original forecast and what such information is material. The SEC advises that the analysis may depend on the amount of time that has elapsed since the original forecast and the timing of the confirmation. The SEC notes in the C&DIs that a statement by an issuer that the forecast has “not changed” or that it is “still comfortable with” the forecast is no different than a confirmation of the prior forecast. The SEC also warns issuers that an issuer’s reference to a prior forecast may, depending on the circumstances under which the reference is made, imply that the issuer is confirming the forecast. If the issuer wants to refer to a prior estimate without implicitly confirming it the issuer should make clear that (i) the earlier estimate was only as of the date it was given and (ii) it is not being updated. 2. Regulation FD does not itself create a duty to update. 3. Issuers can review and comment on an analyst’s model privately without triggering Regulation FD; however, the issuer should not convey material nonpublic information in so doing. The SEC advises that an issuer ordinarily would not be conveying material nonpublic information by correcting historical facts that were a matter of public record, or by providing “seemingly inconsequential data” that an analyst may use to form a “mosaic that reveals material nonpublic information.” 4. Issuers may provide material nonpublic information to analysts as long as the analysts expressly agree to maintain confidentiality until the information is made public. Such agreement need not contain an agreement not to trade on the information or contain an acknowledgement that the recipient won’t use the information in violation of federal securities laws – the recipient of the information must expressly agree to keep the information confidential. 5. Road show materials used in connection with a registered public offering need not be disclosed under Regulation FD. Note that this guidance does not cover “private investment, public equity” or “PIPE” transactions, in which the issuer conducts a private placement of shares and then subsequently registers the resale of those shares. 6. Issuers can disclose material nonpublic information to employees without making public disclosure of the information under Regulation FD. The SEC notes, however, that an issuer’s employees are still subject to insider trading liability for trading or tipping material nonpublic information. 7. Disclosures by an issuer’s employees who are not authorized to speak under a communications or similar policy of the issuer are not covered by Regulation FD. 8. An issuer that wants to make public disclosure of material nonpublic information under Regulation FD by conference call must (i) provide notice of the date, time, subject matter and call-in information for the call, and (ii) provide the notice “a reasonable period of time” ahead of the call (several days is ideal, but the SEC recognizes that a shorter period of time may be necessary). Where the issuer makes a transcript of the call available after the call, the SEC encourages issuers to indicate in the notice how, and for how long, the transcript will be publicly available. 9. Issuers can satisfy the Regulation FD disclosure obligations by Form 8-K and Form 10-Q filings if the disclosures are made within the time periods required by Regulation FD.
http://www.dlapiper.com/sec-updates-regulation-fd-guidance/
8/26/2009
DLA Piper | Publications | SEC updates Regulation FD guidance
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10. Once the issuer has made disclosure by filing a report with the SEC on EDGAR, the issuer may immediately publicly disclose the information. 11. The SEC clarifies that a disclosure can be “intentional” for purposes of Regulation FD even though the disclosing party did not originally plan to disclose the information. 12. The presence of press at a non-public meeting does not render the meeting “public” for Regulation FD purposes. Will Additional Guidance Translate into a Revived Enforcement Reg FD Initiative? Since the landmark decision in SEC v. Siebel Systems nearly four years ago, the SEC’s Enforcement Division has pursued very few actions concerning Regulation FD. In Siebel Systems, a federal court dismissed the SEC’s complaint, finding that statements by the company’s CFO to analysts were not material, nonpublic information (as required for a violation of Regulation FD) because the company’s CEO had already publicly made similar comments. The court also criticized the SEC's close scrutiny of the language used in the statements, noting that "such an approach places an unreasonable burden on a company's management and spokespersons to become linguistic experts, or otherwise live in fear of violating Regulation FD should the words they use later be interpreted by the SEC as connoting even the slightest variance from the company's public statements." The SEC chose not to appeal the Siebel Systems decision, and, in a later speech on the subject, one SEC Commissioner described the commission's reaction to the Siebel rebuke by saying, "We took off our amateur psychologist hats, put away our microscopes and went home rather than appealing that decision." The recent guidance suggests that this period of relative silence concerning Regulation FD may be at an end. Issuers are advised to consult with counsel and the SEC’s new disclosures before deciding on a course of action under Regulation FD. Many disclosures that may implicate Regulation FD issues depend on the specific facts and circumstances of the disclosure, and the SEC’s latest guidance does not provide any safe harbors for issuer disclosures.
http://www.dlapiper.com/sec-updates-regulation-fd-guidance/
8/26/2009