By Amy Borrus In the four years since the Securities & Exchange Commission passed Regulation FD to ensure that companies don't whisper special information to favored analysts and investors, the agency has brought only five cases charging violations. And two of those cases have been against Siebel Systems (SEBL), giving the San Mateo (Calif.) software company the dubious distinction of being the first alleged repeat offender of the fair-disclosure rule.
Siebel settled the earlier case in November, 2002, without admitting or denying the charges and paid a $250,000 civil penalty settlement. This time, though, it looks like Siebel isn't willing to settle with securities regulators. So on June 29, the SEC filed charges in federal court in the Southern District of New York. The commission also charged two Siebel execs -- CFO Kenneth Goldman and former investor relations director Mark Hanson -- with aiding and abetting the company's alleged violations. Last, Siebel was charged with failing to comply with a new rule that requires companies to maintain disclosure controls and procedures to ensure that material information is properly reported in company filings.
The move is part of the SEC's ongoing efforts to level the playing field for the small investor. Reg FD was passed four years ago to eliminate some public companies' practice of meeting behind closed doors with favored investors and analysts to give them a heads up before informing the rest of the investing public.
"CALLOUS DISREGARD"? In the Siebel case, the SEC is seeking unspecified civil penalties and a permanent injunction to bar the company from further violations of Reg FD. Securities lawyers say if the SEC prevails, Siebel will get slapped with a far higher fine this time. "Coming back at a company a second time on a Reg FD violation reflects the commission's concern about the culture and conduct at this company," says Jacob Frenkel, a partner at Smith, Gambrell & Russell in Washington, D.C. "The SEC is alleging almost a callous disregard for the first enforcement action, and, therefore, the consequences will be far more serious" if Siebel is found liable, he adds.
According to the SEC, the violations occurred at two private events Goldman attended with Hanson in New York on Apr. 30. At a one-on-one meeting with an institutional investor and at a dinner hosted by Morgan Stanley & Co., the SEC alleges that Goldman made upbeat comments about Siebel's business prospects that contrasted with negative remarks the company had made publicly in the prior three weeks.
Hanson, who oversees Siebel's Reg FD compliance, allegedly failed to prevent Goldman from making the selective disclosures. He could have corrected the alleged violation by making the information public the next day -- but the SEC says he didn't do that, either.
NO NEW POLICY. The SEC contends that Siebel did little, in the aftermath of its first alleged violation, to shore up its compliance with Reg FD: Hanson and his staff received no special training, nor did he institute a company policy or safeguards to ensure that material, nonpublic information would be disseminated properly.
A lawyer for Siebel couldn't be reached for comment, and the company issued no statement following the SEC's action. Siebel's shares closed down 4%, to just under $11, on June 29. Borrus is a correspondent in BusinessWeek's Washington bureau