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One thing is for certain: No company wants to become the Regulation FD poster child. Before the controversial Securities and Exchange Commission rule went into effect today, there was a flurry of last-minute guidance — from private attorneys as well as the federal agency itself — to companies as they begin navigating the murky times ahead. One way for the SEC to best explain Regulation FD, for “fair disclosure,” is to snag a company or two and hold them up as examples of what not to do, securities lawyers say. The rule mandates that public companies provide important, non-public information to the public at the same time it tells securities analysts. If the disclosure is made inadvertently, the company must release the information widely within 24 hours. According to the SEC, public disclosure of material information can be made in a Form 8-K filing or a press release. It is insufficient to merely post the information on a company Web site. Companies that run afoul of Regulation FD will not be exposed to private securities litigation, only SEC enforcement actions. The rule, a priority of SEC Chairman Arthur Levitt, is designed to end selective disclosure of material information to a select group of analysts, institutional investors, portfolio managers and other market observers. The media is exempt from the rule, which SEC commissioners adopted in August on a 3-1 vote over the objections of many securities industry factions. “We are all in fear of becoming the poster child” for violating Regulation FD, said John D’Alimonte, partner with Willkie Farr & Gallagher in New York. “There is no doubt in anyone’s mind that the SEC has put great emphasis on this rule. We all know this,” he said. “And we don’t want the poster child to be our clients, and our clients don’t want it to be them.” Reflecting the difficulties of compliance, securities lawyers said, several industry groups such as the Securities Industry Association and the National Investor Relations Institute have asked the SEC to delay implementing the rule until the end of the year. But the SEC refused to change today’s start date. “There still are some initial ambiguities about the rule,” said James D. Spellman, an SIA spokesman. “But companies are doing their best, and they are learning all they can about the rule to make sure they will be in compliance.” The SIA has long warned that Regulation FD will “chill” communications between companies and the marketplace, suggesting that companies will respond to the rule by shutting down discussions entirely. At its core, Regulation FD is difficult to comply with, said Stanley Keller, a partner at Palmer & Dodge in Boston and chairman of the American Bar Association’s committee on federal regulation of securities. “Compliance rests upon materiality judgments that company officials will often make on the spot,” Keller said. “Companies need to revisit their entire approach to communication with the marketplace and decide what information they feel they are prepared to disseminate publicly.” The rule also could be the death knell to informal discussions with analysts, leading to more marketplace volatility, Keller said. “Companies will most likely provide a general type of guidance, and will be reluctant to go into the kinds of details that really give analysts the tools they traditionally use,” he said. “This could lead to wider spreads in analysts forecasts of companies’ current earnings prospects and as a result, more volatility, as companies don’t meet those broader, less precise forecasts.” Karl Groskaufmanis, partner in Fried, Frank, Harris, Shriver & Jacobson in Washington, said the exchange between companies and analysts is good for the marketplace, and Regulation FD will not change the imperative for information. “Compliance is challenging because the issues are hard,” Groskaufmanis said. “Companies are being asked to make legitimate judgment calls while thinking on their feet.” Others in the industry disagree with the “chilling effect” argument and applaud the rule. “The SEC is making an attempt to try to literally level the playing field,” said John Halebian of Wechsler Harwood Halebian & Feffer in New York. “They may have gone a little further than some people expected because selective disclosure is a difficult area, but I think it’s a start. “It makes the situation better rather than worse.” Donald H. Meiers, a former attorney adviser in the SEC’s division of corporate finance and now a partner at Holland & Knight LLP’s Washington, D.C., office, acknowledged the rule will affect how corporate America parcels out information, but added that Regulation FD will prove to be a “wonderful thing” in time. To prepare for the Regulation FD era, Meiers urged companies to do the following: Institute a policy allowing only specifically identified individuals to speak with or field questions from analysts, shareholders or the media. Document guidance given to the investment community. Provide advance notice to the media and general public of the date, time and means of access to the conference calls. Meiers suggested companies avoid the following: Divulging new information not contained in a press release. Talking to market analysts, shareholders or investors on a one-on-one basis late in the quarter after the earnings picture becomes clear. Commenting on projections and forecasts as to accuracy, and consistency with company views or data. “My conviction is the dust will settle,” Meiers said. “The SEC will take one or two enforcement actions, and eventually people will get back into comfort zone and normalcy will prevail.” The clock is now ticking. Copyright (c)2000 TDD, LLC. All rights reserved.

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