SEC Disclosure Rule Prompts Varied Corporate Spins

The SEC's rule attacks the practice of companies feeding important information to select analysts and market pros. Under the rule, in effect since Oct. 23, any "material" information intentionally given to select groups must simultaneously be disseminated to the public.

Companies' attempts to comply with the rule underscore the fine line that exists between adequate disclosure and possibly landing out of bounds. In their carefully mapped out disclosure policies, for instance, two technology companies have created a multi-leveled program to reach analysts, institutional investors and the retail investing community.

Straight from the SEC's suggested model, Xilinx Inc. (XLNX) and Altera Corp. (ALTR) open their earnings conference calls through a live Internet broadcast. They also recently alerted the world through a press release that business updates will be available on the Web and on a corporate telephone line at a pre-designated time, a method not precisely laid out under the SEC rule.

New information posted on a Web site isn't in itself sufficient, the SEC said in the regulation's adopting release. But the two companies, as well as securities law experts, said the firms should be in good standing with the SEC, which also said that an issuer may use a method or "combination of methods" of disclosure, as long as they're "reasonably designed" to achieve broad and non-exclusionary distribution of information to the public.

Other companies came out with Internet-related disclosure policies that might not be in lockstep with the SEC. In a speech earlier in November, enforcement director Richard Walker specifically took aim at legal advice making the rounds that suggested companies file a "procedural 8-K," announcing that future disclosures will be posted to a company's Web site.

Right out of the box, CommScope Inc. (CTV) may have done just that, announcing through a form 8-K that it planned to release information on its Web site. CommScope said it believed the method "is an efficient and expeditious way to communicate with stockholders simultaneously and instantaneously." The coaxial cable company declined to comment further. The key difference between the two methods hinges on the fact that Altera and Xilinx broadly announced specific times to tune in, an expert suggested. An SEC spokeswoman didn't immediately return a call for comment.

SEC Not Expected To 'Take Cheap Shots'

As companies navigate their way through the rule's strictures, SEC staffers have signaled that enforcers aren't looking to pounce on a company that makes a procedural misstep but is keeping an eye out for egregious violations.

"The SEC has made clear from the first presentation on FD that it wasn't going to take cheap shots, or go after close materiality questions or procedural glitches," said former SEC general counsel Harvey Goldschmid, who helped draft the rule. "I believe they're adhering to that approach."

Some companies, meanwhile, have created FD strictures that don't exist. For example, several companies cited the rule in clamping down on executive interviews with real-time financial reporters, even though communication with the media is exempt from Regulation FD.

The companies could be getting that interpretation of the FD rule from the National Investor Relations Institute, which has been recommending companies treat analysts, professional investors and the media equally. NIRI, in written guidance to members, which include investor relations officers and consultants, said the financial media, particularly televised financial programs, compete with analysts and that the new rule "created a competitive imbalance."

It isn't only companies putting their own spin on the new regulation. The blueshirt group, a San Francisco investor relations firm that caters to high-tech companies, has been handing out to clients a handy business card-sized script, filled with advice on exactly what to say "before" and "after" a conference call.

"I don't think that anything I've told you is material. If you believe it is, we could both be in violation of Regulation FD," is the message executives are supposed to deliver at the end of a call. But there's nothing in FD that says that analysts are in trouble if they happen to be the recipients of material nonpublic information; the burden is on corporate officers to make sure the news is widely disseminated.

Partner Chris Danne said that while the onus wouldn't necessarily be on the person tuned into the call, the firm sees the card as a way to help out corporate officers who unwittingly get themselves in a bind. "It's an opportunity for us to get information if anyone thinks something was disclosed that was material," he said. "It's worded in such a way to try to be helpful in terms of assisting the company in complying with the new regulation."