Updated from June 29
vowed to fight
Securities and Exchange Commission
allegations that the company has now twice violated rules prohibiting the disclosure of market-moving news to a limited audience.
Siebel and two executives were named in a complaint filed Tuesday that alleges the company made statements in two April 30 meetings that gave a group of money managers an unfair advantage in the market. The executives are CFO Ken Goldman and former investor relations director Mark Hanson.
Siebel said it concluded after an extensive internal review that no violation occurred. "Additionally, despite the company's repeated requests, the SEC has not provided any credible evidence that the company believes supports the SEC's allegations," Siebel said in a statement. "The company believes it has meritorious defenses to the lawsuit and is prepared to pursue resolution of this matter through the normal course of civil litigation."
The suit is the first to be filed by the SEC in federal court under the prohibition, which is known as regulation fair disclosure. But it marks the second time San Mateo, Calif.-based maker of marketing software has been accused of a violation. Six months ago, the SEC issued an administrative order finding Siebel broke the law and imposed a $250,000 penalty.
Shares of Siebel were recently down 1 cent to $10.58.
The SEC charges Siebel violated its cease-and-deist order when Goldman disclosed material, nonpublic information during a one-on-one meeting with Alliance Capital Management. He allegedly did it again later the same day at an invitation-only dinner hosted by Morgan Stanley and attended by six institutional investors.
Both meetings occurred on April 30, 2003. The next day, Siebel stock rose about 8%, trading nearly twice the average daily volume of the preceding year.
The securities regulator charges that in the meeting and dinner, Goldman made positive comments about the company that contrasted with negative comments made by the company in the preceding few weeks, including a negative preannouncement of quarterly financial results.
At least two attendees at the Morgan Stanley dinner bought Siebel stock the next morning, as did recipients of a Morgan Stanley email on the dinner, the suit claims.
In a meeting with Alliance, Goldman allegedly said Siebel's activity levels were better, that new deals were returning to the pipeline and that the pipeline of sales was growing, including some $5 million deals, the complaint claims.
Before that meeting, the two Alliance portfolio managers who attended did not hold Siebel shares in their funds for about a year. Two other Alliance portfolio managers held short positions in Siebel shares, with one saying he viewed the company as "kind of a small junky company," according to the SEC.
After the meeting, the two portfolio managers who attended the meeting placed orders to buy 114,200 shares of Siebel stock and passed along Goldman's comments to the third Alliance portfolio manager, who then told the fourth manager. Both the third and fourth portfolio managers, who were short the stock, covered their positions, according to the SEC.
Alliance has not been named as a defendant. Alliance spokesman John Meyers declined to comment on the Siebel case.
After Siebel received queries from investors about the comments, Hanson and Goldman consulted with the company's general counsel but did not tell him what they said at the meetings, the SEC claims. Siebel should have disclosed the information detailed in the meetings in a filing with the agency, the SEC suggests in its complaint.
The company did disclose to investors last November that it could face SEC action in connection with the Morgan Stanley dinner. The company also said Siebel and its officers have filed submissions with the SEC in response to the potential actions, which the company believes contain "numerous meritorious defenses" to the allegations.
James Meyers, assistant chief litigation counsel in the SEC's division of enforcement, said the agency decided to file suit to seek a court injunction requiring Siebel to comply with a cease-and-desist order issued as part of an administrative order in the first case.
In that first case, the agency found Siebel violated regulation FD when Chairman and then-CEO Tom Siebel disclosed information at a Goldman Sachs conference in 2001 without the company simultaneously distributing the information to the public. The company paid the $250,000 penalty fee without admitting or denying the SEC's findings.
But given the size of that fine and Siebel's balance sheet, one Siebel bull on the sell side quickly issued a note Tuesday discounting the impact of another disclosure violation by Siebel.
"We expect that any monetary fines relating to today's charges will be higher, given that this is a second offense," Banc of America Securities analyst Hari Srinivasan wrote in his note.
"However, we should point out that the company has a cash balance of $2.1 billion, which prevents any potential litigation-related charges from having a material impact on the company." (Srinivasan has a buy rating on Siebel, and his firm has done investment banking with the company.)
After the first case, the company did little to improve its disclosure compliance, the SEC charged. The agency noted that Hanson and his staff never received any formal training in disclosure law, nor did they create a company policy regarding compliance. In fact, fully complying with the regulation was Hanson's lowest priority, according to his own performance objective for the first half of 2003, trailing such goals as obtaining upgraded analyst ratings and increasing institutional investor holdings, according to the complaint.
Srinivasan countered those charges in his note as well. He pointed out that Siebel has named a new CEO, hired a new person to head its investor relations department and has taken a more conservative approach to interacting with investors. "Given these aggressive moves within the company, we do not view today's announcement as noteworthy or expect it to have a material impact on SEBL," he wrote.
But in a note Wednesday, JMP Securities analyst Pat Walravens speculated that recently hired CEO Mike Lawrie "must be giving some serious thought as to whether he has the right CFO given the SEC charges against Goldman." Walravens, who has a market perform rating on Siebel, said he believes the next few weeks would be an appropriate time for Lawrie to make any changes to his executive team. (JMP hasn't done any banking with Siebel.)