Telecommunications Company Fined for Selective Disclosure Violations
Commentary by Ilan T. Graff
A telecommunications company settled SEC charges for violating Regulation FD ("Fair Disclosure") by selectively sharing company performance data that was material to investors. Three of the company's investor relations executives settled simultaneous charges for aiding and abetting in the company's violations. The defendants did not admit or deny the allegations in connection with the settlement.
The SEC found that, after learning that the company would not meet revenue expectations for a third consecutive quarter, the executives were instructed to encourage analysts to lower these revenue expectations. The SEC alleged that the three executives selectively disclosed material nonpublic information. The SEC said that the executives shared the company's internal product sales data with approximately 20 firms and falsely told the analysts that the information they were sharing was "consensus," that is, the average forecast of all analysts covering the company (as distinct from non-public information), when it in fact was not.
The company was found to have violated Exchange Act Section 13(a) ("Periodical and other reports") and Regulation FD. The individuals were found to have aided and abetted the company's violations. To settle the charges, the company agreed to pay a civil monetary penalty of $6,250,000 and each of the executives agreed to pay $25,000.
Commentary
The SEC reported the company’s fine was the largest-ever settlement for a Reg FD violation. The fact that defendants felt the need to lie to at least some analysts, and falsely claim they were sharing public information, speaks to the strength of analysts’ compliance norms, and their sensitivity to acquiring potential MNPI.