Last week's settlement of a Reg. FD action by the SEC against the CFO of American Commercial Lines (ACL) seems like a throwback to an interrupted line, to the enforcement actions from 2002 to 2005 that slowed to a crawl with the "Siebel II" action in late 2005. The SEC had an attractive fact pattern with ACL in which to break its silence: ACL's CFO, also its de facto investor relations officer, sent an email from his home on Saturday to eight sell-side analysts updating guidance and cutting in half the publicly released earnings guidance. ACL did not release a Form 8-K with the updated information until Monday, and the resulting analysts' reports led to a significant drop in ACL's stock price.
How can we be sufficiently cautious, when a hasty email from a mobile device on the train home or from the office late in the evening can damage a career and subject a company to enforcement? Here are the three simple lessons from the ACL tale:
- Ask for Review. The CFO drafted the email on
Friday and planned, but failed, to send it to outside counsel for
review. In retrospect he should have sent the email to his CEO or
outside counsel for review rather than rushing it out the
door.
- Act Fast to Correct a Mistake. The SEC did not
bring an enforcement action against ACL, in part due to its efforts
to remedy the situation. If Reg. FD mistakes happen, follow
ACL's lead: immediately file a correcting Form 8-K, self-report
to the SEC if appropriate, re-check your Reg. FD process, and
consistently re-train.
- Internal Controls Require Reg. FD Compliance. Reg. FD is an internal controls issue, and SEC rules require management to report on internal control over financial reporting. The committee charged with oversight of internal controls and legal compliance should expect regular confirmation of Reg. FD training and reporting as an indication of healthy internal controls.
View our
updates and Chapter 3 of our 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.
