After a long absence of such cases, the Securities and Exchange Commission on Aug. 20 settled a Regulation FD proceeding against a Florida pharmaceutical company for allegedly sharing “material, nonpublic information with sell-side research analysts without also disclosing the same information to the public.”
More specifically, the SEC imposed a $200,000 penalty against the company for two disclosures.
The case appears unremarkable without the context of Reg FD’s two-decade history.
Reg FD was controversial even before its adoption in 2000 and has been heavily criticized ever since, resulting in fairly few recent enforcement actions.
Reg FD creates potential liability for companies based on what the SEC views as differences between what an executive says to a limited audience and what information is already publicly available. Those differences often depend on judgment calls interpreting information, and, accordingly, that unpredictability around enforcement may result in less disclosure over all. The same phenomenon of “selective disclosure” is already regulated through insider trading laws.
Back to the Reg FD Case
After a meeting with the Food and Drug Administration in which the FDA “provided a clear path forward” for approval of the Florida company’s drug, a company executive sent an email to six sell-side analysts saying the FDA meeting was “very positive and productive” and the company would be “waiting on meeting minutes to decide the path forward” despite the fact that the company had not publicly disclosed the substance of the FDA meeting.
The company’s stock price rose the following day.
Two weeks after receiving the minutes from the FDA meeting, and one month after the FDA meeting itself, the company put out a press release and filed an 8-K regarding the meeting. In the press release, the company described the FDA meeting and noted that the meeting had “enabled the company to present new information” to the FDA without disclosing what that new information was.
Half an hour after issuing the press release, the company conducted a call with analysts and emailed to them the medical studies previously provided to the FDA (but not provided to the public).
These selective disclosures — saying that the FDA meeting was “very positive and productive” and distributing medical studies provided to the FDA — to sell-side analysts without making the same disclosures to the public violated Reg FD, according to the SEC.