A recent enforcement action by the SEC demonstrates the continuing need for public companies to implement sound policies to prevent potential violations of Regulation FD and to provide periodic training to officers regarding compliance with those policies. Significantly, this action is the first Regulation FD enforcement action brought by the SEC in two years and one of only a limited number of SEC enforcement actions regarding Regulation FD since its adoption in 2000. On September 24, 2009, the SEC brought an enforcement action against Christopher A. Black, the former Chief Financial Officer of American Commercial Lines, Inc. (ACL), based on alleged violations of Regulation FD and Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act). The SEC complaint alleged that Mr. Black, who also served as ACL's primary investor-relations contact, disclosed material, non-public information to a group of analysts without simultaneously disclosing that information to the public.
Specifically, the SEC claimed that Mr. Black sent an e-mail to eight sell-side analysts advising that ACL's quarterly earnings would be half of what ACL publicly disclosed in its earnings guidance five days earlier. According to the SEC's complaint, the selective disclosure and resulting analyst reports caused ACL's stock price to drop more than nine percent on unusually heavy volume on the first trading day following Mr. Black's e-mail to analysts. After market close on that day, ACL issued a Form 8-K publicly disclosing the contents of Mr. Black's e-mail.
Without admitting or denying the SEC's allegations, Mr. Black consented to a $25,000 penalty and to cease and desist from violating Regulation FD and Section 13(a) of the Exchange Act.
Notably, and in a departure from several prior Regulation FD cases, the SEC chose not to bring an enforcement action against ACL. The following factors were cited by the SEC as relevant in that determination:
- ACL's “environment of compliance” fostered by training and policies designed to prevent violations of Regulation FD
- Mr. Black acted alone and outside of ACL's control systems designed to prevent such violations
- ACL publicly disclosed the information via a Form 8-K on the same day that it discovered the violation and self-reported the violation to the SEC the next day
- ACL provided “extra-ordinary cooperation” with the investigation undertaken by the SEC staff
- Remedial measures were taken, including the adoption of additional controls to prevent future violations
This enforcement action as well as the SEC's rationale for not bringing an action against ACL, emphasize the need for companies to develop, maintain, and distribute appropriate Regulation FD policies and procedures and to provide sufficient training to their personnel to ensure compliance with those policies and procedures. An “environment of compliance” may help reduce the likelihood that a Regulation FD violation will be brought against an individual officer or employee as well as reduce the likelihood that a corresponding enforcement action will be brought against a company in the event of any selective disclosure by an officer or employee. Further, companies should take prompt remedial action if Regulation FD violations are discovered.