Regulation FD, 17 C.F.R. § 243.100 et seq., provides that whenever an issuer, or any person acting on its behalf, discloses any material nonpublic information regarding that issuer or its securities to any person who is a broker or dealer, an investment adviser, an institutional investment manager, an investment company, or a person associated or affiliated with such entities, or who is a holder of the issuer's securities, under circumstances in which it is reasonably foreseeable that the person will purchase or sell the issuer's securities on the basis of the information, the issuer shall make public disclosure of that information simultaneously, in the case of an intentional disclosure; and promptly, in the case of a non-intentional disclosure.
Plaintiff, the Securities and Exchange Commission ("SEC"), commenced this action, against Siebel Systems, Inc. ("Siebel Systems") and its officers based on violations of, or aiding and abetting in the violation of, Regulation FD ("Fair Disclosure), 17 C.F.R. § 243.100. The SEC claimed that defendants violated Regulation FD because the CFO disclosed material nonpublic information about the corporation's business activity levels and sales transaction pipeline at private events attended by institutional investors; the CFO's positive comments allegedly contrasted with public statements by the corporation's chief executive officer (CEO). The complaint alleges four nonpublic material disclosures made by Mr. Goldman which are the basis for the SEC's claims for violations of Regulation FD: (1) that there were some five million dollar deals in the company's pipeline for the second quarter of 2003; (2) that new dealswere coming into the sales pipeline; (3) that the company's sales pipeline was "growing" or "building;" and (4) that the company's sales or business activity levels were "good" or "better." The complaint relies on no statements regarding specific earnings or sales figures. Defendants argue that dismissal of the complaint is warranted because the four statements at issue cannot support a conclusory allegation that these statements were either material or nonpublic.
Is the dismissal of the complaint warranted since the statements at issue were neither material or nonpublic?
The court found that the alleged disclosures were neither material nor nonpublic, as the substance of the CFO's private statement was equivalent to the information previously disclosed by the CEO. The fact that the CFO's statement was in the present tense while the CEO's statement was in the past tense did not cause the statements to materially differ. The CFO's statement that the transaction pipeline was growing or building added nothing to the CEO's statement that an increase in revenues was projected based in part on an analysis of the pipeline. The § 13(a) and Rule 13a-15 claims failed as well; the SEC made only conclusory assertions that the corporation failed to maintain controls designed to ensure proper disclosure of nonpublic material information.