Risk & Compliance

Law Professors Back SEC on Reg FD

The regulation does "not even remotely begin to prohibit all forms of selective disclosure," their friend-of-the-court brief reportedly argued.
Stephen TaubMarch 16, 2005

Regulation Fair Disclosure, the Securities and Exchange Commission’s four-year-old effort to standardize the flow of corporate information to all interested parties, were scheduled to face an unusual challenge yesterday when Siebel Systems challenged the constitutionality of the rule during arguments in U.S. District Court in New York.

Supporting Reg FD, through a friend-of-the-court brief, were 22 prominent securities law professors. Their brief argued that Siebel and the U.S. Chamber of Commerce, which is supporting the business software maker, “present a distorted picture of Regulation FD, which in fact restricts only limited communication chiefly with other regulated professionals.”

San Mateo, California-based Siebel maintains that the commission lacked statutory authority to pass the regulation and that Reg FD violates the First Amendment, according to Dow Jones.

“If one reads only the briefs of defendants and the Chamber of Commerce,” the professors reportedly argued, “one is given the sense that Regulation FD is a sweeping rule that broadly chills speech and ‘impairs fundamental First Amendment values’.”

They disagreed with Siebel’s argument that the rule inhibits free speech because it “compels corporate executives to engage in unwanted discourse with the public at large.” The regulation does “not even remotely begin to prohibit all forms of selective disclosure,” the brief reportedly stated. It added that the rule prohibits disclosures to certain categories of people, but allows companies to “freely and selectively disclose information” to other groups including the media, credit ratings agencies and suppliers.

“Simply put, Regulation FD is far from the sweeping ban that defendants and the Chamber of Commerce would have this court believe,” the professors reportedly added. “Regulation FD largely precludes selective disclosure to persons who are securities professionals who are independently regulated by the federal securities laws.”

The law professors who signed the petition, according to Dow Jones, include Joel Seligman, dean of Washington University’s law school who several decades ago wrote a book on the history of the SEC; Donald Langevoort of Georgetown Law School; John Coffee of Columbia University Law School; Jill Fisch of the Fordham University School of Law; and Larry Soderquist of Vanderbilt University.

The SEC has brought only a few Reg FD cases. Siebel is the only company to be accused twice of violating the rule.