In a surprise decision, a judge has dismissed a case brought by the Securities and Exchange Commission against Siebel Systems and chief financial officer Kenneth Goldman alleging violations of Regulation Fair Disclosure.

Reg FD, which took effect in 2000, bans U.S. public companies from selectively disclosing “material nonpublic” information to investors, analysts, and company outsiders unless they make that information available to the public simultaneously or promptly. Securities lawyers awaiting the court’s decision had little faith in Siebel’s chances for dismissal based on its claim, among others, that the First Amendment’s right to free speech should override the SEC charges.

Judge George B. Daniels, of the U.S. District Court for the Southern District of New York, ruled that statements Goldman made at a private institutional investor conference were not, in fact, material information unavailable to the public. Chief executive officer Tom Siebel, the judge found, had made similar comments — though worded differently — during an earlier analyst presentation.

“It would appear,” wrote Judge Daniels, “that in examining publicly and privately disclosed information, the SEC has scrutinized, at an extremely heightened level, every particular word used in the statement, including the tense of verbs and the general syntax of each sentence. No support for such an approach can be found in Regulation FD.”

The judge also reasoned that the SEC’s approach to enforcing the rule “places an unreasonable burden on a company’s management and spokespersons to become linguistic experts, or otherwise live in fear of violating Regulation FD should the words they use later be interpreted by the SEC as connoting even the slightest variance from the company’s public statements.”

“Regulation FD does not require that corporate officials only utter verbatim statements that were previously publicly made,” Daniels added. “Fair accuracy, not perfection, is the appropriate standard.”

This was the second complaint brought by the commission against Siebel for allegedly violating Reg FD. In a 2002 settlement with the SEC, the company paid a $250,000 civil penalty and agreed to a cease-and-desist order against further such violations.

This year’s case began on April 30, 2003, when Goldman attended two private events with investor relations director Mark Hanson, also a defendant in the case — a one-on-one meeting with institutional investor Alliance Capital Management and at an invitation-only dinner hosted by Morgan Stanley. At those events, Goldman stated that business was “good” or “better” and that there were “$5 million deals” in the pipeline.

The SEC charged that those positive statements materially contrasted with chairman Thomas Siebel’s depiction of an “apocalyptic economic environment” during a Deutsche Bank conference weeks earlier, the court observed. Goldman also apparently noted privately that the company’s outlook was improving as the result of new business, while Siebel told investors that the company’s second-quarter earnings guidance was improving because deals expected to close in the first quarter had “slipped” into the next and were closing.

Judge Daniels ruled that while the statements of Goldman and Siebel were not exactly the same, both provided the same information, and Goldman’s statement “did not add, contradict, or significantly alter the material information available to the general public.”

Applying Reg FD in an “overly aggressive manner,” the judge added, discourages public disclosure of facts relevant to investment decision-making.

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