SELECTIVE DISCLOSURE: REGULATION FD COMPLIANCE REMAINS RELEVANT
Publicly-traded issuers routinely possess material nonpublic information that they wish to disclose to industry analysts, major institutional shareholders or other investment professionals outside of the issuer. In decades past, these so-called ‘selective disclosures’ could allow the recipients to benefit from market-moving information before it was available to the public. These days, however, such disclosures generally are met with little fanfare, as they are usually accompanied by contemporaneous broad public disclosure of the same information, typically in a Form 8-K Current Report.
The US Securities and Exchange Commission (SEC) clamped down on selective disclosures back in 2000, adopting Regulation Fair Disclosure (Regulation FD). Over the next 10 years, issuers saw a flurry of enforcement activity and, through the crucible, honed their compliance programmes to address the new rules. Enforcement activity receded and Regulation FD seemingly became a relic of the post ‘dotcom’ bubble era.
Issuers would do well not to be complacent. In July 2020, news broke that Eastman Kodak had reached an agreement with the US government to receive a $765m loan from the US International Development Finance Corp. to begin manufacturing generic drug ingredients. A watershed moment and huge pivot for Kodak, it also proved a lucrative time to trade Kodak’s stock, whose trading volume increased dramatically in the days before Kodak’s announcement, followed by an incredible 2100 percent rise in price the day after the announcement. For the SEC and certain lawmakers, the situation looked prime for insider trading. For compliance professionals, however, it quickly became clear that Kodak had a Regulation FD problem.
Apr-Jun 2021 Issue
Thompson Hine LLP