SEC Disclosure Charges Settled
Three companies Monday settled federal charges that they disclosed key information to selected analysts or big investors, in the first cases involving a 2-year-old rule that bans such practices.
But the Securities and Exchange Commission, in announcing the charges under its so-called Reg FD, fined just one of the companies -- triggering criticism from some experts who said the settlements may have little deterrent effect.
The SEC said the cases against software maker Siebel Systems Inc., defense contractor Raytheon Co. and Internet security specialist Secure Computing Corp. involved the disclosure of company information to small groups of analysts and/or investors, without giving it to the public at the same time.
That practice was banned in 2000 when the SEC adopted Reg FD, or “Fair Disclosure.” Critics said the rule could stifle the flow of information to the market.
In the cases announced Monday, the three firms neither admitted nor denied the allegations, but promised to adhere to Reg FD. San Mateo, Calif.-based Siebel also agreed to pay a $250,000 civil penalty.
“Most companies have been trying hard to conform to the regulation, but this combination of cases indicates that the commission is quite serious about enforcement,” said SEC Commissioner Harvey Goldschmid, who helped craft the rule.
However, some observers called the settlements little more than a slap on the wrist. “In the scheme of things, penalties don’t get much lighter,” said Henry Hu, a law professor at the University of Texas. “Instead of enhancing enforcement this might actually inhibit it.”
Others disagreed. “The next time these companies violate Reg FD the sanctions could be very significant,” said Jonathan Macey, a law professor at Cornell University. “They’re on notice, and so are CEOs and investor relations people elsewhere.”
Siebel, which reported operating income of $13.1 million in the third quarter, said the fine won’t affect its finances.
Fines were a point of contention at the SEC. Commissioners Paul Atkins and Cynthia Glassman dissented on the Siebel ruling, seeking a smaller fine or none at all; Commissioner Roel Campos dissented in the other cases, saying Raytheon and Secure should have been fined.
In the Siebel case, CEO Tom Siebel gave an upbeat outlook for the firm Nov. 5, 2001, at an invitation-only tech conference in Carlsbad, Calif., hosted by Goldman Sachs & Co., the SEC said. The remarks contrasted with a bleak outlook in Siebel’s earnings report three weeks earlier.
The day of the conference, Siebel’s stock jumped 20% on heavy volume. Scott W. Friestad, assistant director of the SEC’s Washington enforcement division, said the agency was “able to trace trading in the stock to people who were sitting in the audience.”
Siebel said Monday that more than 200 people attended the conference, including reporters, and that its CEO was unaware that the event was not being Webcast. If it had been broadcast on the Internet, the firm would not have run afoul of Reg FD because the information would have been available to all.
In the Raytheon case, Chief Financial Officer Franklyn Caine allegedly gave earnings guidance to analysts in one-on-one phone conversations in mid-February and early March 2001.
According to the SEC, Caine helped guide Wall Street’s consensus estimate for the first quarter of 2001 down to 27 cents a share from 31 cents, without sharing that guidance with investors in general.
On Monday, Lexington, Mass.-based Raytheon said it “remains committed to full and fair disclosure to all investors.”
The Raytheon case has been long rumored. It took until now to bring, in part, because the SEC wanted to bundle several Reg FD cases to enhance the deterrent message, sources said.
Meanwhile, Secure Computing’s CEO John McNulty allegedly told two portfolio managers about a contract with a large computer networking company on March 6 and early March 7, before the news was disclosed after the market’s close March 7, the SEC said.
“The matter is closed,” the San Jose-based company said.
The SEC also looked into Reg FD charges against Motorola Inc., but said it decided against taking action because a company executive got legal advice before starting one-on-one talks with analysts. Though “wrong,” the advice was “obtained in good faith,” Friestad said.
