Regulation FD: an alternative approach to addressing information asymmetry

Did the Siebel Systems Case Limit the SEC's Ability to Enforce Regulation Fair Disclosure?

“…In general, prior work finds that a change in the regulatory environment has little to no effect on market participants without legitimate enforceability of the new regulation(s) (Harford [1978], Viscusi and Zeckhauser [1979], Kambhu [1989], Schwartz and Soo [1996], Fernandes and Ferreira [2009], Christensen, Hail, and Leuz [2016]) and a revised perception among market participants that the expected value of compliance exceeds the costs of violation (Kambhu [1989], Laux and Stocken [2018]). The legal community broadly viewed the SEC's defeat in Siebel as a major obstacle to future Reg FD enforcement efforts (Slifer [2005], Solomon [2005], Fisch [2013], Bengtzen [2017]). In fact, in the aftermath of Siebel , a former SEC chairman and a former SEC enforcement lawyer both expressed doubts about whether the SEC could continue enforcing Reg FD the same way that it had before (Solomon [2005]).…”

“…The Siebel case in 2005 was the first instance in which the SEC pursued a Reg FD civil action and was largely based on indirect evidence that Siebel Systems violated Reg FD. The district court judge dismissed the SEC's charges with such force that legal commentators described it as a “public scolding” of the SEC (Fisch [2013]). In the court decision, Judge George B. Daniels argued that the SEC was applying Reg FD in an “overly aggressive manner” and that this aggressive enforcement approach provides no clear guidance for companies to comply with the regulation (Daniels [2005]).…”

Managers' private communications with analysts: The effect of SEC v. Siebel Systems, Inc.

“…Following its adoption of Reg FD and prior to the US federal district court's ruling on SEC v. Siebel Systems, Inc ., on September 1, 2005, the SEC brought six early enforcement actions (Fisch, 2013; Hanley, 2003). Notably, these early actions were resolved through settlement, so they did not involve judicial evaluations of the conduct at issue.…”

“…The coefficient on ANALY_OUT×POST_SIEBEL is 0.0004 ( t ‐stat = 2.24), indicating that the average effect of the Siebel decision on the informativeness of analyst outputs for the 14‐year period, though significant, is significantly smaller in magnitude ( F ‐stat = 15.59 with p ‐value <0.000, untabulated) than that for the first year after the Siebel decision (0.0009, t ‐stat = 5.36, see Table 2, panel A). One plausible reason for the smaller average effect for the longer period is that the effect of Siebel faded away when the SEC resumed Reg FD enforcement actions a few years after the Siebel decision (Bengtzen, 2017; Fisch, 2013). We investigate this possibility below.…”

Material Information in Managers’ Private Disclosures: Evidence from Professional Investors’ Perceptions

“…Despite evidence that investors benefit from privately meeting with managers (e.g., Green et al 2014a;2014b;Soltes 2014;Solomon and Soltes 2015;Kirk and Markov 2016;Bushee, Jung, and Miller 2017;Bushee, Gerakos, and Lee 2018;Allee et al 2022), the sources of such benefits and its legality remain unclear. While these benefits can be due to disclosure of material information, some have argued that disclosure of immaterial information can also help investors complete a "mosaic" of material information, affecting trading decisions (e.g., Dirk v. SEC;SEC 2002;Fisch 2013;Solomon and Soltes 2015). The fundamental challenge to understanding the nature of private meetings and whether material information is disclosed in them is that they are, by nature, unobservable to the public.…”