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More than two years after enacting Regulation FD (fair disclosure), the Securities and Exchange Commission has brought its first set of enforcement actions under the rule, which forbids companies from disclosing market-moving information to analysts and fund managers without releasing it to the public. The SEC announced Monday that it brought cease-and-desist actions against Raytheon Co., Siebel Systems Inc., and Secure Computing Corp. All three actions were settled with the companies neither admitting nor denying guilt. Siebel alone agreed to pay a $250,000 fine. The agency also filed an investigative report against Motorola Inc. for an alleged Regulation FD violation. However, it declined to take formal action against the company. The regulation had been a pet project of former SEC Chairman Arthur Levitt. It was passed in August 2000 over the fierce opposition of Wall Street and went into effect the following October. After that, however, the agency went into quiet mode, promising that companies need not harbor “excessive fear of enforcement.” Monday’s announcements signal that the SEC has not forgotten about the rule. “We are very serious about enforcing Reg FD,” said Wayne M. Carlin, who heads the Northeast Regional Office, which is based in New York City. The office handled the investigations against Motorola and Raytheon. “When we become aware of a violation of Reg FD, we will treat it as we treat violations of any other rule, and enforce it vigorously,” he said. Edward H. Fleischman, senior counsel at Linklaters & Alliance’s New York office and a former SEC commissioner, said the SEC’s actions sent a more ominous message. “Before today, I might have counseled these four [companies] to act otherwise or speak otherwise, but I wouldn’t have had the slightest hesitation telling them, ‘If you’ve already done it, don’t worry about it. You didn’t do anything bad,’” he said. “From this day forward, my advice is, ‘Don’t talk without a script, answer no questions not in the script, and don’t talk to anyone unless you’re on the air,’” Fleishman said. Three of the cases involved the company’s private disclosure of upcoming profit information that differed from the public reports. In the fourth, Secure Computing, the company privately released information about a new contract. The disclosures were made by company officials either to a few institutional investors or to analysts in one-on-one conversations. The SEC went easy on Motorola because it found that the company sought and followed the advice of in-house counsel “in good faith,” although as it turned out, the advice was wrong. In February 2001, Motorola publicly announced “significant weaknesses” in sales and orders. Later, after seeing that analysts were still overstating expected earnings, the company, after consulting with its lawyer, privately informed analysts that sales in fact were down by 25 percent. Motorola spokesman Scott Wyman said the company was pleased to have been found to have acted in good faith, that no formal enforcement proceedings were filed, “and that the matter has been concluded.” Carlin said the decision not to prosecute Motorola reflects two ideas. “The commission is saying it’s a good thing for companies to seek legal advice on questions of Reg FD compliance, and if you do so in good faith it provides a lot of protection,” he said. “At the same time, if you fail to reveal all the relevant facts to your lawyer or you don’t follow your lawyer’s advice, having sought his advice is not going to cut any ice,” Carlin said. “It’s not a free pass,” he added. The other case out of the New York office, against the military equipment manufacturer Raytheon, involved the selective disclosure in February 2001 of quarterly and semi-annual earnings guidance, “the prototypical disclosures Regulation FD aimed to prohibit,” the SEC said. The SEC noted that, significantly, the disclosures, which were made in one-on-one conversations with sell-side analysts, caused the analysts to revise their estimates. In contrast, two analysts who did not talk to Raytheon kept the same quarterly estimates. The company said in a statement that the settlement would not affect Raytheon’s financial condition and that it remains committed to “full and fair disclosure to all investors.” In the case against Siebel, the SEC said the company’s chief executive “made positive comments about the company’s business” at an invitation-only Goldman Sachs technology conference last November. The same day, the company’s stock rose 20 percent on double the average volume. The chief executive allegedly disclosed that the company was optimistic because business was returning to normal, in contrast with earlier public statements about the tough market the company faced. Linklaters’ Fleishman said the Siebel case was the most disturbing of the four. “These were fairly subtle changes,” he said. The fourth case, against Silicon Valley-based Secure Computing, accused the software company of privately leaking information to two fund managers about a new contract. As rumors of the deal spread, both volume and price of its stock rose sharply, yet the company did not issue a press release until the next day, according to the SEC. For the companies themselves, the cease-and-desist orders are largely symbolic, since only Siebel is paying a fine, and a relatively minor one at that. But as symbols go, “it’s a pretty big deal,” said Carlin. And in terms of legal significance, should any of the companies violate Reg FD down the line, they will also be in breach of an SEC order, he said.

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