SEC Settles First Cases Involving Fair Disclosure
Highlights of the three test cases and their resolution:
- Siebel Systems paid a $250,000 fine. The SEC charged that the CEO had made positive remarks at an invitation-only technology conference, after having made negative statements three weeks earlier in a public conference. The positive remarks led to a rise of approximately 20% in the company's stock price on the day of the conference. The SEC said the Director of Investor Relations knew the conference would not be simultaneously broadcast to the public, but failed to advise the CEO of this fact.
- Raytheon agreed to a cease-and-desist order. The SEC charged that the CFO had selectively disclosed quarterly and semi-annual earnings guidance to sell-side analysts. Specifically, the CFO said the company would generate one-third of its earnings per share (EPS) in the first half of 2001 and the remaining two-thirds in the second half. He also counseled analysts that their estimates were "too high," "aggressive" or "very aggressive." According to the SEC's complaint, the disclosures were made during one-on-one calls with analysts. After these conversations, the analysts revised their estimates.
- Secure Computing consented to a cease-and-desist order. The SEC said the company's CEO had disclosed information about a significant contract to portfolio managers at two institutional advisers. The contract was later announced to the public after the markets closed. But the SEC said investors who sold stock in the company prior to the announcement had been unfairly penalized because they were denied information that might have affected their investment decisions.
All three companies consented to the settlements without admitting or denying the SEC's allegations. Former SEC Commissioner Edward Fleischman said , "these are not tough penalties. It's a trumpet, telling everybody to watch out, don't get caught in these situations."
In contrast, however, the SEC said it decided not to file charges against Motorola because the company sought the advice of its in-house lawyer before making any selective disclosures. The Commission found the lawyer's advice was erroneous, but the company acted in good faith.