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The Securities and Exchange Commission may have struck a blow for the common man when, on August 10, it enacted Regulation FD — a.k.a. Regulation Fair Disclosure — which prohibits companies from feeding information to Wall Street analysts without releasing it to the average investor. But the agency doesn’t seem as concerned about making life easy for in-house counsel. In his opening statement at the SEC meeting convened to consider the change, chairman Arthur Levitt justified the new requirement, saying that elective disclosure practices “defy the principles of integrity and fairness.” During the comment period, the SEC had received more than 6,000 letters, the vast majority from individual investors urging that Regulation FD be adopted. But while the new rule may make the public happy, it has Corporate America scratching its collective head. Still unanswered are many questions about what can and cannot be said, what must be disclosed, and what can remain private. “The rules are difficult, and they’ll require significant changes in procedure,” says Stephen Glover of Gibson, Dunn & Crutcher’s Washington, D.C., office. “The SEC staff should give some guidance,” he adds. While uncertainty reigns, Glover says, business people are canceling their appearances (on advice of counsel) at investment banking conferences. He predicts that it will be six months to a year before the business community and its lawyers are comfortable with the new rule. For the analyst meetings that haven’t been canceled, outside counsel have been busy vetting scripts and sideshows, says Boris Feldman of Palo Alto’s Wilson Sonsini Goodrich & Rosati. He also says there will be big changes in protocol for upcoming earnings announcements. The new rules require that any “material” information disclosed to selected shareholders or analysts be made available to the public within 24 hours, via an SEC filing or press release. There is no liability for inadvertent failures to disclose, and violating Regulation FD doesn’t give rise to an antifraud action. Nonetheless, Feldman sees the potential for suits claiming breach of fiduciary duty. For many companies, these rules may be much ado about nothing. A recent survey by the National Investor Relations Institute found that nearly two-thirds of publicly traded companies already opened their corporate conference calls to the general public via real-time Webcast or other technology. One such corporation is the high-flying technology company JDS Uniphase Corp., which manufactures fiber-optic components at its San Jose facilities. Says Christopher Dewees, JDSU’s director and corporate counsel: “The new rules won’t affect us at all. We’ve opened our conference calls to the public.” He seems glad that it won’t be an issue for him because, for the closed conferences, “figuring out what’s ‘material’ can be tricky.” To those companies that do selectively disclose information, the new rules may come as a welcome excuse to avoid meetings with analysts. Many have felt that the better practice, under SEC opinions and case law, would be to forgo selective disclosure of material information. “Many companies are using the rule to stop doing things they were always concerned [about] doing,” says John D’Alimonte of New York’s Willkie Farr & Gallagher. But even if all earnings calls are opened to the public, lawyers will still have lots to worry about. The rule covers all communications with financial insiders, the majority of which, Feldman notes, are unscripted and unplanned.

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