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First 'Reg FD' Cases Settled

Nov 26, 2002 | Star Ledger Corporate America got a taste yesterday of how federal regulators will treat violators of Regulation Fair Disclosure, or Reg FD, as it is often called.

In the first major test of the 2-year-old rule requiring disclosure of news to all investors at the same time, the Securities and Exchange Commission settled charges with Raytheon Co., Siebel Systems Inc. and Secure Computing.

The SEC maintained the companies shared market-sensitive news with a handful of Wall Street insiders ahead of the public.

It marks the first enforcement actions by the SEC of the controversial rule designed to level the playing field between small individual investors and large Wall Street firms.

Although none of the companies admitted wrongdoing, the SEC issued cease-and-desist orders against all three, the legal equivalent of telling them to shape up and not violate Reg FD in the future.

Siebel Systems, a San Mateo, Calif.-based software maker, also agreed to pay a $250,000 fine.

Charles Elson, director of the Center for Corporate Governance at the University of Delaware said the actions should serve as a warning.

"Regulation FD is new and the boundaries are unclear," he said. "The limits of Regulation FD have not been tested, and what you're seeing now is the testing of those limits."

The SEC, meanwhile, cleared Motorola in a case in which company executives had one-on-one conversations with analysts in 2001.

"In this case, it appears that Motorola acted based on advice of counsel that, although erroneous, was sought and given in good faith," the SEC said. Still, the SEC cautioned companies "that reliance on counsel will not necessarily provide a successful defense in all future cases.

Among the findings released yesterday, the SEC said:

Siebel Chief Executive Thomas Siebel disclosed material information at an invitation-only technology conference hosted by Goldman Sachs in California back on Nov. 5, 2001. Siebel said his company was optimistic because its business was returning to normal.

These statements contrasted with negative comments Siebel had made about the company's business three weeks earlier.

Subsequently, the company's stock price closed about 20 percent higher on double its average daily trading volume.

In a statement, Siebel said it was "unaware that the conference was not being Web cast."

Raytheon Chief Financial Officer Franklyn Caine told Wall Street analysts individually in February 2001 that some of their earnings estimates for the Massachusetts-based defense contractor were too high.

When that failed to budge one analyst, Caine sent an e-mail noting the analysts' earnings estimate was "WAY" above what the company expected. Raytheon had not provided public guidance on earnings.

Raytheon said in a statement it "remains committed to full and fair disclosure to all investors."

John McNulty, CEO of Secure Computing, revealed to two fund managers last March a significant contract with one of the nation's top computer network manufacturers.

"It has been and continues to be Secure's corporate policy to follow Regulation FD," the company said in a statement.

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