Selective Disclosure Violation Results in SEC Order

06 September 2019 Publication
Author(s): Benjamin F. Rikkers Mitchell D. Lindstrom

Recently, the Securities and Exchange Commission (SEC) issued an order charging a publicly traded pharmaceutical company with violations of Regulation FD as a result of selectively disclosing material, nonpublic information. The selective disclosures at issue pertained to two separate occasions in 2017 during which the company’s executives selectively shared material nonpublic information with certain sell-side research analysts about the status of the FDA approval process for one of its drugs.

Per Regulation FD, public companies may not selectively disclose material, nonpublic information to certain persons outside the company, including institutional investors, securities analysts, or other securities professionals. If a public company intentionally makes such a disclosure, Regulation FD requires that the company must simultaneously make a public disclosure with the selective disclosure. If such disclosure is non-intentional, the public disclosure must be made promptly, but in no event after the later of 24 hours or the commencement of the next day’s trading on the New York Stock Exchange. By providing material, nonpublic information to its sell-side analysts and by failing to simultaneously or promptly publicly disclose that information as required by Regulation FD, the SEC concluded that the company violated Regulation FD and its reporting obligations under Section 13(a) of the Exchange Act.

The order makes it clear that the SEC views Regulation FD and compliance therewith as issues public companies must address. In this case, at the time that the company selectively disclosed material nonpublic information, the company did not have policies or procedures relating to compliance with Regulation FD. In order to avoid missteps with Regulation FD, public companies are advised to revisit their current policies and procedures to ensure that its employees are trained on Regulation FD requirements and that they have state-of-the-art compliance programs in place. 


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