The SEC’s Division of Corporation Finance has updated its Compliance and Disclosure Interpretations (“C&DIs”) pertaining to the Division’s interpretations of Regulation FD. Some of these C&DIs were first published in prior Division publications and have been revised in this release.
Regulation FD requires issuers that disclose any material non-public information regarding the issuer or its securities to certain persons, whether the disclosure was intentional or unintentional, to make prompt public disclosure of that same information. Regulation FD generally covers disclosures to broker-dealers and their associates, investment advisers and investment companies, and shareholders of the issuer under circumstances in which it is reasonably foreseeable that the shareholder will buy or sell the issuer’s stock based on the information. Regulation FD does not apply to disclosures made to persons who are subject to a confidentiality agreement or who otherwise owe a duty of trust or confidence to the issuer or to entities whose primary business is issuing credit ratings.
The staff’s new Regulation FD guidance, issued on August 14, 2009, addresses the following in the usual question-and-answer format:
- Can an issuer ever confirm selectively a forecast it has previously made to the public without triggering the rule’s public reporting requirements?
An issuer can selectively confirm a forecast that it has previously made to the public without triggering public reporting requirements under Regulation FD. To ensure compliance, the issuer needs to consider whether the confirmation itself conveys any information beyond the original forecast and whether such information is material. The materiality determination will often depend on the amount of time that has elapsed since the original forecast and the timing of the confirmation. Moreover, the staff notes in the C&DIs that a statement that the forecast has “not changed” or that the issuer is “still comfortable with” the forecast is no different from a confirmation of the prior forecast. The SEC also warns that a reference to a prior forecast may imply that the issuer is confirming the forecast unless the issuer makes clear that (i) the earlier estimate was only as of the date it was given and (ii) it is not being updated.
- Does Regulation FD create a duty to update?
No. Regulation FD does not change existing law with respect to any duty to update.
- Can an issuer ever review and comment on an analyst’s model privately without triggering Regulation FD’s disclosure requirements?
Yes, but it depends on whether, in so doing, the issuer communicates material non-public information. The staff advises that an issuer ordinarily would not be conveying material non-public information by correcting historical facts that were a matter of public record, or by providing “seemingly inconsequential data” that an analyst may use to form a “mosaic that reveals material non-public information.”
- May an issuer provide material non-public information to analysts as long as the analysts expressly agree to maintain confidentiality until the information is public? If an issuer gets an agreement to maintain material non-public information in confidence, must it also get the additional statement that the recipient agrees not to trade on the information in order to rely on the exclusion in Rule 100(b)(2)(ii) of Regulation FD?
An express agreement to maintain the information in confidence is sufficient. Further, such an agreement need not contain an agreement not to trade on the information or contain an acknowledgement that the recipient won’t use the information in violation of federal securities laws – the recipient of the information need only expressly agree to keep the information confidential.
- Must road show materials in connection with a registered public offering be disclosed under Regulation FD?
Disclosure made “in connection with” a registered public offering is not subject to Regulation FD. A disclosure in a road show made while the issuer is not in registration, however, is subject to Regulation FD unless those who receive the information expressly agree to keep the material non-public information confidential. The staff cautions, however, that this guidance does not cover “private investment, public equity” or “PIPE” transactions, in which the issuer conducts a private placement of shares and then subsequently registers the resale of those shares.
- Can an issuer disclose material non-public information to its employees (who may also be shareholders) without making public disclosure of the information?
Regulation FD applies to disclosures made to “any person outside the issuer.” Regulation FD does not apply to communications of confidential information to employees of the issuer. An issuer’s officers, directors, and other employees are subject to duties of trust and confidence and face insider trading liability if they trade or tip.
- If an issuer has a policy that limits which senior officials are authorized to speak, will disclosures by senior officials not authorized to speak under the policy be subject to Regulation FD?
Selective disclosures of material non-public information by senior officials not authorized to speak are made in breach of a duty of trust or confidence to the issuer and are not covered by Regulation FD. Such disclosures may, however, trigger liability under existing insider trading law.
- If an issuer wants to make public disclosure of material non-public information under Regulation FD by means of a conference call, what information must the issuer provide in the notice and how far in advance should notice be given?
In such case, the issuer must (i) provide notice of the date, time, subject matter and call-in information for the call, and (ii) provide the notice “a reasonable period of time” ahead of the call. In this regard, several days is ideal, but the staff recognizes that a shorter period of time may be necessary. Moreover, where the issuer makes a transcript of the call available after the call, the staff encourages issuers to indicate in the notice how, and for how long, the transcript will be publicly available.
- Could an Exchange Act filing other than a Form 8-K, such as a Form 10-Q or proxy statement, constitute public disclosure?
Yes. Including information in a document filed on EDGAR within the time frames that Regulation FD requires would satisfy the rule. In considering whether that disclosure is sufficient, however, issuers must take care to bring the disclosure to the attention of readers of the document, must not bury the information, and must not make the disclosure in a piecemeal fashion throughout the filing.
- For purposes of Regulation FD, must an issuer wait some period of time after making a filing or furnishing a report on EDGAR that complies with the Exchange Act before making disclosure of the same information in a non-public meeting?
Prior to making disclosure of this information in a non-public meeting, the issuer need only confirm that the filing or furnished report has been accepted for filing on EDGAR and is publicly available on EDGAR.
- During a non-public meeting with analysts, an issuer’s CEO provides material non-public information on a subject she had not planned to cover. Although the CEO had not planned to disclose this information when she entered the meeting, after hearing the direction of the discussion, she decided to provide it, knowing that the information was material and non-public. Would this be considered an intentional disclosure that violated Regulation FD because no simultaneous public disclosure was made?
Yes. A disclosure is “intentional” under Regulation FD when the person making it either knows, or is reckless in not knowing, that the information he or she is communicating is both material and non-public. In the staff’s example, the CEO knew that the information was material and non-public so the disclosure was intentional, even though she did not originally plan to make it.
- Can an issuer satisfy Regulation FD’s public disclosure requirement by disclosing material non-public information in a speech at a shareholder meeting open to the public? The meeting will not be covered by the press, a webcast or be broadcast by any electronic means.
A meeting that is open to the public but not otherwise webcast or broadcast by any electronic means is not a method of disclosure “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.”