III. How the Rules Work
a. Understanding Reg FD’s Basics 4-26
- Designed to Promote Fairness 4-26
1. Reg FD is a Disclosure Rule 4-27
- Reg FD Changed Disclosure Practices 4-27
- Reg FD Changed Traditional Analyst Roles 4-28
- Types of Companies Subject to Reg FD 4-28
- Foreign Private Issuers Not Subject to Reg FD 4-29
- Only “Senior Officials” & Enumerated Others Covered 4-29
- Directors Deemed to Act on Behalf of Company 4-30
- VC-Appointed Directors May Face Conflicts of Interest 4-30
- Only Disclosures to Enumerated Market Participants Covered by Reg FD 4-30
- Reg FD Expressly Excludes Certain Types of Disclosures 4-31
- Senior Officer Can’t Avoid Reg FD by Directing Others to Make Disclosure 4-31
- Reg FD Policies & Procedures Should Be Adopted and Enforced 4-31
- Identify Who Is Authorized to Make Disclosures 4-32
- Require Unauthorized Employees to Make Referrals to Authorized Spokespersons 4-32
b. “Material” & “Nonpublic” Information under Reg FD 4-32
- Traditional Definitions of Materiality Apply 4-32
- Enumerated Matters Warrant Review 4-33
- Materiality Not Presumed with Form 8-K 4-33
- Consider SAB No. 99 in Materiality Analysis 4-34
- Materiality Determinations Assessed by Regulators in Hindsight 4-34
- “Mosaic” Theory Under Reg FD 4-34
- Materiality Based on Facts & Circumstances 4-35
- Consider Designating Disclosure Team for Materiality Evaluations 4-36
- Disclosure Team Typically Composed of Legal, IR, Communications, Finance 4-37
- High “Knowing” or “Reckless” Standard Applies to Materiality Judgments 4-37
- Market Reaction May Indicate Materiality 4-38
- Private Guidance Reaffirmations Okay in Limited Circumstances 4-38
- “Nonpublic” Information Largely Defined By Reference to Case Law 4-39
c. Website & Social Media Disclosures As “Public” 4-40
- SEC’s Analytical Framework 4-40
- Evaluating Whether Website is a “Recognized Channel of Distribution” 4-40
- Evaluating Whether Website “Dissemination” is Adequate 4-41
- Reasonableness of Waiting Period Is Facts & Circumstances-Specific 4-42
- Evaluating Whether Social Media Disclosures Are “Public” 4-43
d. Permitted & Prohibited Communications 4-43
- Reg FD Prohibits Selective Disclosure to Market Participants 4-43
- Certain Types of Selective Disclosures Expressly Excluded 4-44
- “Investment Advisers” Are Covered Recipients of Information 4-44
- Security Holders Are Covered Recipients of Information 4-45
- Venture Capitalists Are Covered Recipients 4-46
- Communication of Material Nonpublic Information to Employees Permitted 4-46
- Communication of Material Nonpublic Information to Investment Bankers Permitted 4-47
- Ordinary Course Business Communications with Customers, Suppliers Permitted 4-47
- Ordinary Course Communications with Independent Contractors Permitted 4-47
- Communications with Certain Proxy Advisors Subject to Reg FD 4-48
- Private Communications with Analysts About Earnings is High-Risk 4-48
- Private Communications with Analysts Still Permitted in Certain Circumstances 4-50
- Practices for Private Communications with Analysts 4-50
- Limited Access Settings Don’t Satisfy Public Disclosure Requirement. 4-51
- Guidelines for Presentations in Limited Access Settings 4-51
- Disclosure at Shareholder Meetings Typically Doesn’t Satisfy Reg FD 4-52
- Prepare to React to Private Analyst Communications After the Fact 4-52
- Confidentiality Agreements Don’t Need To Be In Writing 4-53
- Confidentiality Agreements Must Be Express 4-53
- Confidentiality Agreements Don’t Need to Prohibit Trading 4-54
- Confidentiality Agreement May Be Obtained After Selective Disclosure Under Certain Circumstances 4-54
- Agreement to Not Violate Federal Securities Laws Insufficient for Confidentiality Agreement 4-54
- Disclosure of Material Nonpublic Information Under Embargo Permitted 4-55
- May Use Embargo Agreements with Analysts Before Merger Announced 4-55
- Disclosure to Merger Partners Before Transaction Subject to Reg FD 4-55
- Use of Press Ordinarily Not Sufficient to Comply with Reg FD 4-56
- Selective Disclosure May Violate Reg FD, Rule 10b-5 & Exchange Rules 4-57
e. Dissemination of Disclosure 4-57
- Public Disclosure Can Be Made in Various Ways 4-57
- Company Responsible for Ensuring “Broad, Non-Exclusionary Distribution” 4-58
- SEC’s Public Disclosure Model Uses Mix of Disclosure Methods 4-58
- Press Release Typically Satisfies Public Disclosure Requirement 4-59
- No Particular Disclosure Method Required 4-59
- Provide Adequate Advance Notice of Upcoming Call or Meeting 4-60
- Advance Notice for Conference Call Requires Certain Information 4-60
- Disclosure of Additional Information on Properly Noticed Call/Webcast Permitted 4-61
- Can “File” or “Furnish” Form 8-K 4-62
- May Use ’34 Act Filings Other Than Form 8-K to Publicly Disclose 4-62
- Evaluating Use of Corporate Website for Public Disclosure 4-62
- Corporate Website Often Used with Other Methods 4-63
- Increasing Number of Companies Rely on Website on Stand-Alone Basis—But Still Not Majority 4-63
- Use of Blog Postings for “Public” Disclosure 4-64
- Use of Social Media for Public Disclosure 4-65
- NYSE & Nasdaq Require Prompt Disclosure of Material Information 4-65
f. Timing of Disclosure 4-68
- Timing Depends on Whether Selective Disclosure Was Intentional 4-68
- “Intentional” Disclosure Triggered by Knowing or Reckless Conduct 4-69
- “Intent” Based on Facts & Circumstances 4-69
- Meaning of “Simultaneous” 4-69
- Meaning of “Non-Intentional” 4-69
- Be Prepared to Make Quick Materiality Evaluations 4-70
- Definition of “Promptly” 4-70
- No Duty to Disclose Due to Merely Possessing Information 4-71
- Reg FD Doesn’t Itself Create or Impact Duty to Update 4-71
g. Securities Offerings & Regulation FD 4-72
- Reg FD Doesn’t Apply to Most Registered Securities Offerings 4-72
- Reg FD Applies Before & After Registered Underwritten Offerings 4-72
- Reg FD Applies Before & After Registered Non-Underwritten Offerings 4-72
- Reg FD Applies to Unregistered Offerings 4-73
- Material Information Disclosed During Private Placement Subject to Reg FD 4-73
- Reg FD Applies to Unregistered Offering Road Shows 4-74
- Private Placement Investors May Be Unwilling to Enter Confidentiality Agreements 4-74
- Reg FD Public Disclosure Requirement May Impact Private Placement Exemption 4-74
- Investment Bankers Covered by Reg FD as Company Agents 4-75
- Communications in Connection with Registered M&A Exempt 4-75
- Reg FD Applies to Specified Ongoing Registered Shelf Offerings 4-76
h. Violations of Regulation FD 4-76
- Violating Reg FD Won’t Itself Trigger Private Lawsuit 4-76
- SEC Deliberately Limited Consequences of Violating Reg FD 4-76
- Independent Auditors May Be Required to Report Reg FD Violations 4-77
- Disclosure Violations May Be Actionable on Other Grounds 4-77
- Employees May Be Individually Liable for Reg FD Violations 4-78
- SEC’s Reg FD Enforcement May Take Different Forms 4-78
i. Policies & Procedures 4-78
- Adoption & Adherence to Reg FD Policies/Procedures Strongly Advised 4-78
- Reg FD Policy Considerations 4-79
- Review Stock Exchange Standards When Drafting Policy 4-80
- Designate Limited Number of Authorized Spokespersons 4-81
- Implement Policies Addressing Director Communications With Investors 4-82
- Presentations to Market Participants Should Be Subject to Pre-Approval 4-83
- Pre-Approve Presentations Even If Not “Typical” Analyst Meeting 4-83
- Address Communications with Analysts & Review of Analyst Reports 4-83
- Address “Quiet Period” Procedures 4-84
- Address Social Media in Reg FD Policy
- Address “Materiality” in FD Policy 4-85
- Monitor Market Activity & Rumors on Ongoing Basis 4-85
- Educate All Employees—Not Just Senior Officials 4-85
- Implement Regular Reg FD Training 4-86
IV. Common Questions & Our Analysis
a. Understanding the Basics 4-87
1. Identify Authorized Spokespersons 4-87
2. Require Unauthorized Employees to Refer Inquiries to Spokespersons 4-87
3. Disclosure to Government Not Subject to Reg FD (But Still May Warrant Public Disclosure) 4-88
4. Disclosure to Independent Contractors Permissible 4-88
5. Form 15 Filer Subject to Regulation FD 4-88
6. Investment Banker Exception Applies Once Banker Engaged 4-89
7. Reg FD Applies to Communications with ISS 4-89
8. Confidentiality Agreement Can Be Oral 4-90
b. Material & Nonpublic Information 4-90
1. May Disclose Non-Material Information to Analysts That Completes Mosaic 4-90
2. Private Discussions with Market Participants About Earnings Are Risky 4-91
3. Correcting Analyst Perceptions After Earnings Release Likely Violates Reg FD 4-91
4. Look to Stock Price Movement as Materiality Indicator 4-92
5. No Duty to Disclose Based on Mere Possession of Material Nonpublic Information 4-93
6. Prepare to Make Real-Time Materiality Determinations 4-93
7. Team Composition for Materiality Evaluations 4-94
8. Evaluating Materiality of Non-Intentional Disclosures 4-94
9. How to Detect & React to Potentially Mistaken Materiality Judgments 4-95
10. Reg FD Impact on Compensation Plan Disclosure 4-95
11. Reg FD Impact on Merger-Related Announcements 4-96
c. Private Conversations 4-96
1. Minimizing Risks of Private Analyst Communications 4-96
2. Okay to Communicate Immaterial Information to Analysts 4-97
3. Policies/Procedures Should Govern Analyst Communications 4-98
4. Document Private Communications 4-99
5. Communications with Merger Partners Subject to Reg FD 4-99
6. Communications with Venture Capitalists Subject to Reg FD 4-100
7. Confidentiality Agreements Don’t Need to Prohibit Trading 4-100
8. Don’t Rely on Third-Party Confidentiality Agreements 4-100
9. Agreement to Not Violate Federal Securities Laws Inadequate 4-101
10. Factors Determining Confidentiality Agreement Duration 4-101
11. Press Communications Should Be Handled With Caution 4-102
12. Embargoing Permissible Means to Enable Selective Disclosure 4-102
13. Embargo Agreements with Analysts May Be Helpful in Mergers 4-102
14. Disclosures by Directors Subject to Reg FD 4-103
d. Dissemination of Disclosure 4-104
1. Various Permissible Means of Public Disclosure 4-104
2. Form 8-K Itself Is Sufficient Means of Public Disclosure 4-104
3. Timing for Earnings Release & Earnings Call 4-105
4. Timing for Quarterly Pre-Announcement 4-105
5. Announcing Reg FD-Compliant Investor Meetings 4-106
6. Publicly Furnish Handouts from Reg-FD Compliant Meetings 4-107
7. Adequate Notice for Reg FD-Compliant Conference Call 4-107
8. Toll-Free Numbers Not Required for Investor Calls (But Overwhelmingly Common) 4-108
9. Disclosure of Material, Related Information on Earnings Webcast Permissible 4-108
10. Disclosure of Related Information on Earnings Call Doesn’t Trigger Additional 8-K 4-109
11. Feeding Questions to Analysts/Others to Ask Could Be Problematic 4-110
12. Form 8-K Sufficient for Earnings Guidance Update (But Press Release Typically Also Issued) 4-110
13. Use of Website for Reg FD Disclosure 4-111
14. Determining Whether Corporate Website is Recognized Channel of Distribution 4-112
15. Determining Whether Website Information Is Generally Available 4-114
16. Use of Social Media for Public Disclosure 4-115
17. Reg FD-Compliant Investor Conferences 4-115
18. Using Website to Announce Investor Conference 4-116
19. Presence of Media Ordinarily Inadequate to Achieve Public Disclosure 4-116
20. Intentional Disclosures Require Knowing or Reckless Conduct 4-116
21. Simultaneous Disclosure Means Public Disclosure Must be Concurrent 4-117
22. Non Reg FD-Compliant Semi-Public & Private Forums 4-117
23. Guidelines for Disclosures in Limited Access Settings 4-118
24. Webcasting Annual Shareholder Meetings Not Required, But May be Considered 4-118
25. Disclosure at Shareholder Meetings Isn’t Public Disclosure 4-119
26. Informing NYSE of Material Information If Happens After Market Close 4-119
e. Securities Offerings & Regulation FD 4-119
1. Communications During Private Placements Subject to Reg FD 4-119
2. Private Placement Road Show Communications Subject to Reg FD 4-120
3. Planned Private Offering as Material, Non-Public Information 4-120
4. Private Placement Investors May Be Unwilling to Enter Confidentiality Agreements 4-121
5. Public Disclosure Requirement in Unregistered Offerings May Impact Exemption 4-121
6. Using Securities Act Rule 135c to Comply With FD 4-122
7. Investment Bankers Acting as Private Placement Agents Are Company “Agents” 4-122
8. Reg FD Doesn’t Apply to Registered M&A Communications 4-123
