Judge dismisses Regulation FD suit against Siebel
NEW YORK -- Siebel Systems Inc. won dismissal of the first lawsuit brought by the Securities and Exchange Commission alleging violations of Regulation FD's prohibition on disclosing material information privately.
Wednesday's ruling by US District Judge George Daniels may limit the impact of the regulation, which was designed to give investors the same access to material information as analysts and others in the financial community who meet privately with company officials.
Siebel, the world's number two maker of customer-service software, has been the target of two of the six Regulation Fair Disclosure lawsuits filed by the SEC since the rule took effect in 2000. The San Mateo, Calif., company did not deny or admit wrongdoing but paid a $250,000 penalty in 2002.
The judge wrote that ''the statements relied upon by the SEC in its complaint do not support an allegation of nonpublic material disclosure."
''I do think this is a serious problem for the SEC because in other cases defendants will raise this decision and claim that they could not have known that given information was material when they leaked it to analysts," said Columbia University law professor John C. Coffee Jr. He was one of a group of law professors who filed a friend-of-the-court brief arguing in favor of Regulation FD's constitutionality. The court didn't address that issue.
Arthur Levitt Jr., who called the regulation an ''extremely important" rule passed during his tenure as SEC chairman, was surprised at Daniels's decision. ''I thought it was clear the law was supportive of the way Reg FD was constructed," he said. ''I would hope the decision would be reversed upon appeal."
SEC spokesman John Nester declined to comment.
''It's a clear warning shot across the bow not to apply the regulation in nit-picking cases," said Los Angeles lawyer Kathleen Sullivan, who argued Siebel's case. ''Though the SEC says it wants more disclosure to investors, Regulation FD in fact chills corporate speech."
