Fair disclosure rules can affect you
REGULATION FAIR DISCLOSURE (FD) covers the disclosure of information that investors
would consider important, says Patrick Rondeau, a securities transactions attorney at
the law firm of Hale and Dorr, in Boston. If you are an executive at a public company
or regularly speak with security market professionals, security holders, or market
analysts -- or both -- this Securities and Exchange Commission (SEC) rule affects you.
1. Get to know the rule
Regulation FD prohibits a public company from intentionally disclosing material
nonpublic information to securities market professionals and security holders -- unless
the company discloses the information simultaneously and publicly, Rondeau says.
Unintentional disclosures of material information to a single or limited number of
sources means a company must publicly disclose the information as soon as possible
after the event.
The new regulation does not apply to ordinary-course business communications with
customers, suppliers, strategic partners, government regulators, or the media, Rondeau
2. Put the rule in context
Rondeau gives this example of how the rule might come into play: Five analysts
covering a public company all report expectations that the company will earn 16 cents
per share. Before the company's Dec. 31 fiscal year's end, "the CFO has a conversation
with one of those analysts and [tells him] that sales have been slow. 'We won't meet
your projections. We're only going to do 10 cents a share.' This is a classic example
of a disclosure of material nonpublic information," Rondeau says. "Put it this way. If
an average investor would consider the information significant in deciding to sell or
buy stock, then it's material."
3. Meet disclosure requirements
The corporate Web site can be used to support adequate public notice of upcoming
events, such as financial analyst conference calls, meetings, and presentations. "You
can use your Web site to help turn private events into public forums. Companies can put
a notice of the call on their Web site, listing an 800 dial-in number, or conduct a Web
cast," Rondeau says.
4. Don't rely solely on your Web site
According to the SEC release adopting the regulation, just posting information on a
corporate Web site currently isn't enough to publicly disseminate material information.
Other methods need to be used in conjunction with Web postings. "A press release is a
broad disclosure. So are SEC filings," Rondeau says.