In case you think that SEC Regulation FD is old news, think again. A recent enforcement action makes it clear that Reg FD is alive and well. (And, I might add, living in Boca Raton, Florida.)
Specifically, in an August 20 announcement, the SEC announced that it had charged a Boca Raton-based pharmaceutical company with FD violations “based on its sharing of material, nonpublic information with sell-side research analysts without disclosing the same information to the public.” The more detailed allegations include the following:
- In June 2017, the company privately advised analysts of a “very positive and productive” meeting with the FDA about approval of a new drug. The next day – before any public announcement – the company’s stock closed up nearly 20% on heavy volume.
- One month later, the company issued an early morning press release that it had submitted additional information to the FDA but “did not yet have a clear path” regarding its new drug application. The stock declined 16% in pre-market trading following the issuance of the release. However, after issuing the press release but before the opening of the market, the company provided analysts with previously undisclosed information about the June FDA meeting. The analysts published research notes with these details, and the stock rebounded, to close “only” 6.6% down for the day.
The SEC found that at the time of these selective disclosures, the company had no policies or procedures addressing compliance with Reg FD. Aside from the customary cease and desist order, the company agreed to pay a $200,000 fine.
One of the key takeaways from this case is the importance of having a policy and procedures to facilitate compliance with Reg FD. Given the company’s conduct, it seems likely that the SEC would have brought this action even if a policy had been in place. However, the fact that the SEC focused on the absence of a policy suggests that it viewed the company’s approach to compliance as cavalier or worse.
Old news, perhaps. But also very much worth remembering.