Updated from 12:15 p.m. EST
Regulation FD is no longer a toothless tiger.
More than two years after the regulation was enacted, the
Securities and Exchange Commission
has brought its first enforcement actions under the rule intended to ensure the timely release of potential market-moving information to investors.
The SEC brought cease-and-desist actions against
stemming from alleged Regulation FD violations that took place either last year or this past spring.
The three companies agreed to settle the cases without admitting or denying guilt. Siebel also agreed to pay a $250,000 fine.
The SEC also filed an investigative report against
involving another alleged Regulation FD violation. But it took no formal action against the cell phone and semiconductor manufacturer.
Under Regulation FD, companies can be sanctioned if they give institutional investors or Wall Street analysts the heads-up on potential market-moving information while keeping that information from the general investing public.
In all four cases, the violations involved the nonpublic disclosure of either information about the company's upcoming earnings or a new contract. The disclosures were by officials at those companies to either analysts or a handful of institutional investors.
The Siebel case rated a fine probably because of the size of the run-up in its stock after word leaked about a sales forecast it gave at a private technology conference in November 2001. Siebel shares jumped 20% on the day of the conference, after Tom Siebel, the company's chief executive, told those in attendance that the company's sales were better than previously announced.
In the complaint field against the company, the SEC noted that a particularly active trader in Siebel shares that day was
, which sponsored the conference. The SEC found that a Goldman employee at the conference emailed the firm's trading desk to alert traders of the positive comments Siebel was making about its business.
The SEC went the easiest on Motorola because the company first received approval from its lawyers before giving Wall Street analysts an update on its earnings in a series of March 2001 telephone calls. Regulators concluded that while Motorola's lawyers gave the company bad legal advice, the corporation had made a "good faith" effort to comply with the regulation.
The regulation is seen by many as the crowning achievement of former SEC Chairman Arthur Levitt. It was adopted over considerable opposition from Wall Street firms and analysts.
The rule is credited with encouraging more companies to allow the general public to listen in on company conference calls with analysts. But critics contend Regulation FD also has prompted corporate officials to err on the side of caution and provide little information beyond the quarterly earnings release.
Still, the SEC's action should quiet some of the criticism that the agency had little intention of enforcing the 2-year-old rule, which many on Wall Street continue to oppose.
On the other hand, the enforcement actions were more symbolic than anything else, because only Siebel is paying any monetary penalty.
According to a copy of the enforcement, Roel Campos, one of two Democratic commissioners on the SEC, objected to the agency's failure to impose fines on either Raytheon or Secure. Meanwhile, Cynthia Glassman and Paul Atkins, two Republican commissioners, objected to the fine against Siebel.
The split division on the Siebel fine is an indication the SEC remains divided along party lines on some issues.
A political rift on the SEC first appeared last month during the contentious appointment over William Webster to a new government accounting oversight board. Webster's appointment by the Republican majority on the SEC ultimately led to the resignation of SEC Chairman Harvey Pitt and Webster himself.
Pitt, however, remains as the SEC's lame duck chairman while President Bush continues to search for a replacement. Ironically, Pitt, a Republican, joined the two Democrats on the commission in voting for the Siebel fine.