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Rather than negotiating a quick settlement of a Securities and Exchange Commission complaint, a California-based technology management company has challenged the authority of the SEC to enact a rule regulating the disclosure of information about the company’s finances. The company’s motion to dismiss the complaint is pending before Judge George B. Daniels in the Southern District of New York. Daniels heard oral arguments on the motion in March. The SEC created the rule, known as Regulation FD, in October 2000 to prevent executives from releasing important information about a company to select individuals or groups without also disclosing the same information to the public. It was designed to prevent analysts and institutional investors who have personal access to top executives from unfairly benefiting from information unavailable to the average investor. Siebel Systems Inc., with the support of the U.S. Chamber of Commerce, is arguing in federal court that only Congress has the authority to promulgate such a policy. Additionally, they claim that the rule violates the company executives’ right to free speech under the First Amendment. The dispute is part of a larger battle against what business interests and their lawyers regard as overzealous prosecutions and expensive new regulations imposed in the wake of recent corporate scandals. The Siebel case is the first enforcement action brought under Regulation FD to proceed without a quick settlement. SEC files charges When the SEC first charged Siebel for violating Regulation FD in November 2002, the company settled the dispute by paying $250,000 and agreed to prevent future violations. Last June, the SEC filed a second charge, this time accusing Siebel and its chief financial officer, Kenneth Goldman, and another executive, Mark Hanson, of violating the regulation again. Six months after the first settlement, Goldman allegedly told approximately six institutional investors at a dinner hosted by Morgan Stanley that Siebel expected to improve its performance by signing millions of dollars in new deals, and mentioned other moves as well. These statements made in a private setting, the commission charged, contradicted negative information disseminated by the company in public statements in preceding weeks, giving these listeners an unfair advantage. Alliance, according to the SEC, took advantage of this information. After the meeting with Alliance, the fund’s traders purchased 114,200 shares of Siebel stock, the SEC contended, and covered positions shorting Siebel. Other investors did not have the same opportunity, regulators argued. Claiming the SEC’s charges were unsupportable, Siebel decided not to settle and filed a motion to dismiss. In this case, Siebel “was convinced that it had not violated Reg. FD,” said Steven Schatz, co-counsel to Siebel and a partner at Wilson Sonsini Goodrich & Rosati of Palo Alto, Calif. An attorney for the SEC declined comment.

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