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The Corporate CounselorKickerFeaturesTopicsRegulationSectionsNewsLJN Newsletters

The SEC's Renewed Focus on Regulation FD

By Jay V. Shah

According to a survey conducted by the Investment Company Institute and the Securities Industry Association, approximately 57 million households, half of all U.S. households, a threefold increase from the early 1980s, own stocks directly or through a mutual fund. The democratization of stock ownership, combined with the advancement and widespread usage of technology-based communication platforms, such as e-mail, Twitter, Facebook and corporate blogs, by the world's largest public companies to communicate information to customers and shareholders has: 1) facilitated the dissemination of information, and 2) resulted in an increased amount of scrutiny on the performance of, and the disclosures made by, public companies. Without question, public corporations and capital markets have had, and will continue to have, an increasingly more visible role in contemporary America. Accordingly, corporate counsel, compliance directors, executive officers and boards of directors should take note: The investing public is demanding more transparency and accountability of corporate America ' more accurate financials, more detailed compensation disclosures and more internal controls.

The fundamental purpose of federal securities laws, in general, and Regulation Fair Disclosure (“Regulation FD”), in particular, is to promote “full disclosure”: the accurate, full and timely disclosure of material information to investors, so that each investor is afforded the opportunity to make a fully informed investment decision. The importance of maintaining fully informed capital markets is predicated on fairness and economic theory (see the Efficient Market Hypothesis theory: sustainable and efficient capital markets establish prices that fully reflect all publicly available information). Regulation FD provides the SEC a platform to regulate and curtail the informational asymmetries in the marketplace. In the past 18 months, the SEC has brought two Regulation FD enforcement actions. While this number may not appear particularly significant, past history (the SEC brought seven enforcement actions from 2002 to 2005) and recent SEC guidance indicates that the SEC has renewed its emphasis on enforcing Regulation FD.

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