Last week, the Securities and Exchange Commission (the “SEC”) charged the former vice president of investor relations for First Solar, Inc. (“First Solar”) with violating Regulation FD and Section 13(a) of the Securities Exchange Act of 1934, as amended, by selectively disclosing material nonpublic information.1 Significantly, the SEC, citing the “extraordinary cooperation” of First Solar, decided not to bring an enforcement action against the company. This action, the first SEC Regulation FD enforcement action brought since November 2011, serves as a reminder to public companies and their executives of the SEC’s willingness to pursue what it views as Regulation FD violations and also highlights certain corrective actions that the SEC is likely to view favorably in the event of a Regulation FD violation.
Regulation FD – Disclosure of Material Nonpublic Information
Regulation FD prohibits issuers from selectively disclosing material nonpublic information to securities professionals without simultaneously (or in some cases, promptly) disclosing the same information to the public.
Recent SEC Action Involving Former First Solar Executive
The SEC’s recent action focused on the conduct of Lawrence Polizzotto, the former vice president of investor relations of First Solar, a manufacturer and seller of solar modules. Specifically, in June 2011, First Solar received conditional commitments from the U.S. Department of Energy (the “DOE”) for loan guarantees of approximately $4.5 billion for three First Solar projects, which were contingent on First Solar meeting certain conditions prior to September 30, 2011. At an investor conference on September 13, 2011, First Solar’s CEO publicly expressed confidence that the company would receive all three loan guarantees. Two days later, Polizzotto and several other executives learned that the DOE had decided not to provide a loan guarantee with respect to one project.
Before First Solar issued a press release regarding its failure to receive all of the anticipated loan guarantees from the DOE, Polizzotto circulated talking points to more than 30 analysts and investors regarding the low probability that First Solar would receive a loan guarantee from the DOE for one of its projects. In addition, in one-on-one calls with certain analysts and investors, Polizzotto and a subordinate highlighted the fact that First Solar would not receive all of the anticipated loan guarantees. After becoming aware of Polizzotto’s selective disclosure regarding the loan guarantees, First Solar’s management issued a press release the next morning (before the market opened) regarding its failure to receive a loan guarantee for one of its projects; its stock price then dropped six percent.
Polizzotto Settlement; SEC Decision Not to Sue First Solar
The SEC entered a cease-and-desist order prohibiting Polizzotto from committing or causing any future violations under Regulation FD and Polizzotto agreed to pay a civil penalty of $50,000 to settle the SEC’s charges.2 However, as noted above, citing the company’s “extraordinary cooperation” with the SEC investigation, the SEC decided not to bring an action against First Solar. Companies should take note of the proactive and remedial steps taken by First Solar and highlighted by the SEC in a press release, which included the following:
- The company “cultivated an environment of compliance” through the use of a disclosure committee (on which Polizzotto served);
- The company immediately discovered Polizzotto’s selective disclosure and promptly issued a press release the next morning before the market opened;
- The company quickly self-reported the misconduct to the SEC; and
- The company took remedial measures to address the improper conduct, including conducting additional Regulation FD training for employees responsible for public disclosure.
Action Items; Contact
Public companies should take note of the corrective actions noted above which were taken by First Solar and viewed favorably by the SEC. In addition, companies should periodically review their Regulation FD compliance programs to monitor their effectiveness and, in particular, consider instituting (if not already in place) a process for reviewing external talking points to protect against the possibility of selective disclosure of material nonpublic information.