what you can say: the state of play

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The presentation addresses the current application of two important securities regulations impacting companies’ communications with shareholders, securities professionals, and the public. Regulation FD has received significant attention from the SEC in recent years, and the discussion will cover the current understanding of the rules on disclosure of material non-public information as well as best practices for protecting your company.Shannon VanVleet Patterson is an associate in the Securities and Corporate Governance practice group in the Richmond office of Troutman Sanders LLP.


  • 1. What You Can Say: The State of Play Presented by Shannon V. Patterson Troutman Sanders LLP NIRI Richmond Chapter September 16, 2011
  • 2. Regulation FD
    • Reg FD adopted in 2000
    • Several early enforcement actions (2002-2005)
      • Adjusting analysts earnings expectations
      • Selective disclosure of significant new contract
      • Disclosure at an investor conference
      • Guidance through language, tone, emphasis and demeanor
      • Reaffirming earnings guidance
    • Fairly quiet until August 2009
  • 3. Regulation FD
    • What is Regulation FD?
      • Prohibits selective disclosure of material non-public information
      • Any intentional disclosure of material non-public information must be preceded or accompanied by a public disclosure by:
        • Form 8-K
        • Press release or
        • Webcast
      • Any non-intentional disclosures must be promptly disclosed to the public (within 24 hours)
  • 4. Regulation FD
    • Applies to disclosures BY :
      • the issuer
      • senior officials and directors
      • officers, employees and agents of the issuer who regularly communicate with securities professionals and shareholders
    • Applies to disclosures TO :
      • securities professionals
      • any shareholder where it is reasonably foreseeable that such shareholder would trade on the basis of the information disclosed
  • 5. Regulation FD
    • Does not apply when communicating:
      • to employees
      • to persons who owe a duty of trust or confidence (attorneys, investment bankers, accountants)
      • to persons who expressly agree to maintain the information in confidence (suppliers, customers)
      • in connection with certain registered securities offerings
    • Dodd-Frank Act required the SEC to remove a prior exemption for ratings agencies effective October 4, 2010
  • 6. Regulation FD
    • Disclosure is intentional if a person making the disclosure knows or is reckless in not knowing that the information is both material and non-public
    • Information is non-public unless:
      • it has been disseminated in a manner calculated to make it available to investors generally, and
      • public investors have had a reasonable period of time to react to the information
  • 7. Regulation FD
    • To be material, there must be a substantial likelihood that a fact would have been viewed by a reasonable investor as having significantly altered the total mix of information available
      • The SEC has said that companies will not be second-guessed on close materiality judgments
      • In the case of a selective disclosure attributable to a mistaken determination of materiality, liability will arise only if no reasonable person under the circumstances would have made the same mistake
  • 8. Regulation FD
    • No bright-line materiality standard, but typical material information includes:
      • earnings information
      • mergers, acquisitions, tender offers, joint ventures or changes in assets
      • new products or discoveries, or developments regarding customers or suppliers (e.g., the acquisition or loss of major contract)
      • changes in control or in management
      • developments regarding significant lawsuits
  • 9. Regulation FD
    • No bright-line materiality standard, but typical material information includes (cont.):
      • change in auditors or notification that a company may no longer rely on an auditors audit report
      • events regarding a companys securities
        • defaults on senior securities
        • calls of securities for redemption
        • repurchase plans
        • stock splits or changes in dividends
        • changes to the rights of security holders
        • public or private sales of additional securities
      • bankruptcy or receivership
  • 10. Recent Developments
    • August 2009 : SEC issued guidance
    • September 2009 : SEC v. Black
    • March 2010 : SEC v. Presstek
    • October 2010 : SEC v. Office Depot
  • 11. Recent Guidance
    • First SEC guidance issued August 2009 (and updated June 2010)
    • http://sec.gov/divisions/corpfin/guidance/regfd-interp.htm
    • Confirmation of previous forecast
      • Selective confirmation is permitted, provided additional material information is not included
      • Timing of confirmation is important (end of period confirmation or confirmation following lapse of time or significant event could be viewed as indicating actual performance)
  • 12. Recent Guidance
    • Confirmation of previous forecast (cont.)
      • Company stating that it has not changed or that it is still comfortable with prior guidance is the same as providing a direct confirmation of the prior guidance even a reference to the prior guidance may imply confirmation of that guidance
      • If a company does not wish to confirm the prior guidance, use no comment
      • A company could make clear when referring to prior guidance that the guidance was provided as an estimate as of the date it was given, and that it is not being updated at the time of the subsequent statement
  • 13. Recent Guidance
    • Reviewing draft analyst reports
      • Companies may review or comment on draft analyst reports, provided no material, non-public information is revealed
      • Inconsequential data may not be material, even if a skilled analyst can discern material information from it
    • Unauthorized Disclosures
      • Selective disclosures of material non-public information by persons not authorized to speak to enumerated persons are not covered by Reg FD
    • Directors
      • Directors authorized to speak on behalf of company may speak privately with shareholders but caution is needed not to disclose material non-public information
  • 14. Recent Guidance
    • Use of confidentiality agreements
      • Material, non-public information may be provided to analysts and investors if they enter into confidentiality agreements
    • Disclosure to employees
      • Companies may provide material, non-public information to employees, as they are subject to duties of trust and confidence and are bound by insider trading policies
    • Intentional selective disclosure
      • Follow-up release of information does not cure a Reg FD violation
    • Immediate disclosure
      • Once the issuer has made disclosure through an EDGAR filing, the issuer may immediately publicly disc