Trylon Communications  - Volume I Issue 6

Disclose, Disclose, Disclose...

…is a common mantra among real estate agents who have long lived with stringent disclosure laws and responsibilities. With enforcement action beginning against public companies for unfair disclosure, investment relations professionals are quickly learning that the mantra may work for them too.

A case in point is Seibel Systems, which has recently faced action by the SEC for violating the Fair Disclosure act by disclosing information to a select group of investment professionals,. An important aspect of the investigation is that the watchdog organization was tipped off to the violation by a media report.

This is an example of why public companies need to be more careful than ever about how they discuss their business. By simply making optimistic business comments to investment groups without webcasting the discussion and thus making it available to anyone who wants to log in, a company can be accused of violating the act.

Many IR professionals are just now beginning to understand the scope of the rule, as enforcement actions begin to give the law some depth.

The Fair Disclosure act - a close cousin to insider trading rules - was written to provide a level playing field between institutional investors and individual investors. Prior to the rule, companies could have conference calls with institutional analysts that excluded shareholders and the general public.

The rule states that whenever a publicly held company (or its representative) discloses any material non-public information, that company must make the information available to the public simultaneously. This has brought an explosion in the use of webcasting for investment meetings, because webcasting can be a very cost-effective way to meet the requirements.

If a company or representative makes any relevant information available unintentionally, as in a slip of the tongue at a private meeting, then that information must be made public immediately.

How vague and ambiguous can the rule become? The answer will be determined as current and future enforcement actions are adjudicated. In one case, Motorola has been charged with violating the rule, but the SEC understands that it was done under legal counsel, and is taking that into account.

For professionals who are interested in more information on Reg. FD and its impact on public companies, click here for the SEC fact sheet.