Continuing its focus on Regulation FD, the SEC filed an action
in early March against Presstek, Inc., a manufacturer and
distributor of high-technology digital imaging equipment, and its
former CEO, Edward J. Marino.
According to the SEC's complaint, two days before the end of
the third quarter, Mr. Marino accepted a telephone call from the
managing partner of an investment advisor to investment funds
holding a significant stake in the company. By then, Presstek was
aware that its third quarter financial results would be lower than
expected due to a weak August performance in both North America and
Europe. When asked about Presstek's performance in Europe
during the summer, Mr. Marino described the summer as "not as
vibrant as [they] expected in North America and Europe" and a
"mixed picture" overall. The call lasted only ten
minutes, but the image of Presstek was clear. While still on the
call, the investment manager sent a text to a colleague,
"sounds like a disaster," and within minutes the firm
began selling off substantially all the shares held by the
investment funds. Presstek disclosed the updated financial
information just after midnight the following day, leading to a 20%
drop in its stock price. The SEC agreed to a settlement with
Presstek for a $400,000 civil penalty, but the action against Mr.
Marino continues.
Along with the Regulation FD action taken by the SEC last fall
against the CEO of American Commercial Lines (see our October 5, 2009 update ), this most recent
enforcement action suggests renewed focus on Regulation FD after a
period of relative inactivity. Here are some simple lessons to take
from this current SEC action:
- Use Extreme Caution in Private Conversations With
Investment Professionals. Be particularly cautious when
the discussions relate to financial results and earnings guidance.
In this case, Presstek planned to issue a preliminary announcement
in October to report its poor performance. If your company needs to
provide advance warning of earnings results or otherwise update its
financial disclosures, do it first in a press release or with a
Form 8-K.
- Provide FD Training and Follow That Script!
Regulation FD missteps can happen in a flash—for Mr.
Marino, it only took ten minutes. Keep Regulation FD "top of
mind" with your executives by implementing a training plan for
spokespersons and Investor Relations professionals that includes
periodic refresher sessions. Then, follow the script. Talking
points and a script can help you confine commentary to identified
publicly disclosed information.
- It's What You Convey, Not Just What You
Say. Though Mr. Marino's comments were limited to
general observations about the Presstek's third quarter
performance, the message was clearly communicated. As the SEC made
clear in its Schering-Plough action , companies cannot
evade the requirements of Regulation FD by using code words or
phrases to convey material nonpublic information. Be careful that
your words don't communicate more than you intend.
- Remedial Measures and Prompt Cooperation Are Key. In this case, the SEC pointed out that Presstek had taken extensive remedial measures, including revision of its corporation communications policy, replacement of its management team, and appointment of new independent board members. These actions played a role in the willingness of the SEC to settle the action with Presstek.
View our updates and Chapter 3 of The Public Company Handbook to read about other Regulation FD enforcement actions by the SEC .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.