Regulation FD

An issuer's investor relations officer tells one analyst, ahead of anyone else, the name of the vendor the company just hired to redesign its office lobby, a fact with no bearing on the company's financial results or operations. Does this selective disclosure violate Regulation FD?

1. A.Yes, because the information was disclosed to one analyst before anyone else learned it.Wrong. Early access alone is not enough; the information must also be material, and this fact is not.
2. B.Yes, but only because the analyst covers the company's industry sector.Wrong. Whether the analyst covers the company's sector has no bearing on the materiality analysis.
3. C.No, because the disclosure was made by an investor relations officer rather than the CFO.Wrong. Which company official makes the disclosure is not the reason there is no violation; the absence of materiality is.
4. D.No, because the information is not material even though it is nonpublic.Correct. Regulation FD requires both materiality and nonpublic status; immaterial trivia disclosed selectively raises no issue under the rule.

Why: Regulation FD restricts selective disclosure of information that is both material and nonpublic. A fact with no bearing on the company's financial condition or operations, however genuinely nonpublic, is not material, and giving one analyst early access to it does not trigger the rule regardless of the timing advantage that analyst received.

An institutional investor who was not on the call believes she traded at a disadvantage because an issuer selectively disclosed material nonpublic information to other investors in violation of Regulation FD. Can she bring a private lawsuit against the issuer directly under Regulation FD for this selective disclosure?

1. A.Yes, because any violation of Regulation FD creates an implied private right of action for disadvantaged investors.Wrong. Regulation FD creates no private right of action; enforcement is exclusively through the SEC.
2. B.No, because Regulation FD does not create a private right of action; it is enforced only by the SEC.Correct. A disadvantaged investor has no independent private claim arising directly from Regulation FD.
3. C.Yes, but only if she can show she was a customer of the placement agent involved.Wrong. This invents a customer-relationship condition for a private right of action that does not exist under Regulation FD.
4. D.No, because Regulation FD only applies to registered offerings, and this was a private placement.Wrong. This misdiagnoses the reason; the absence of a private right of action, not an offering-type exclusion, is why no lawsuit lies here.

Why: Regulation FD does not create a private right of action. It is enforced exclusively by the SEC, so an investor who believes a violation disadvantaged her has no independent claim of her own arising directly from the regulation. Whatever recourse exists runs through the SEC's own enforcement process rather than a private lawsuit grounded in Regulation FD itself.

Before sharing material nonpublic projections with a research analyst, an issuer's CFO simply asks the analyst, in passing and without any written or explicit acknowledgment, to "keep this between us." The analyst says nothing in response. Does this exchange fall within Regulation FD's exclusion for information disclosed to a person who expressly agrees to maintain it in confidence?

1. A.Yes, because the CFO explicitly asked the analyst to keep the information confidential.Wrong. The discloser's request alone is not an agreement; the recipient must expressly agree, which did not happen here.
2. B.No, but only because the request was made verbally rather than in writing.Wrong. The exclusion does not categorically require a written agreement; the defect here is that no agreement, oral or written, was actually reached.
3. C.Yes, provided the analyst did not subsequently trade on or disclose the information.Wrong. Later good conduct does not retroactively establish that an express confidentiality agreement existed at the time of disclosure.
4. D.No, because the exclusion requires the recipient to expressly agree, and an unanswered one-sided request is not an agreement.Correct. Without the recipient's affirmative acceptance of a confidentiality obligation, the express-agreement exclusion does not apply.

Why: The confidentiality exclusion requires the recipient to expressly agree to maintain the information in confidence. A one-sided request that goes unanswered establishes no agreement at all, express or otherwise; the recipient never accepted a confidentiality obligation, so the exclusion does not apply regardless of what the discloser asked for.

On a private call with three sell-side analysts, the chief financial officer of Corriente Industries lets slip that quarterly revenue will come in well below the company's published guidance. The information has not been released publicly, and the disclosure was not intended. Under Regulation FD, what must the issuer do?

1. A.Make public disclosure promptly, no later than 24 hours after a senior official learns of the disclosure or the start of the next trading day, whichever is later, ordinarily by Form 8-K or a broad press release.Correct. Unintentional selective disclosure triggers the prompt public disclosure requirement on that timetable.
2. B.Nothing, because Regulation FD imposes obligations on broker-dealers and analysts rather than on issuers.Wrong. Regulation FD is directed squarely at issuers and the persons acting on their behalf.
3. C.Instruct the three analysts not to publish or trade until the company's scheduled earnings release.Wrong. Restricting the recipients does not satisfy Regulation FD; the information must be made public.
4. D.Disclose the shortfall publicly within 30 days, or at the next quarterly report if sooner.Wrong. Thirty days is far outside the prompt standard the rule imposes.

Why: Regulation FD prohibits an issuer from selectively disclosing material nonpublic information to securities professionals and holders likely to trade without disclosing it to everyone else. When the selective disclosure is intentional, the issuer must make simultaneous public disclosure. When it is unintentional, as here, the issuer must make public disclosure PROMPTLY, meaning no later than 24 hours after a senior official learns of the disclosure or the commencement of the next day's trading on the New York Stock Exchange, whichever is later. Public disclosure is ordinarily accomplished by filing a Form 8-K or issuing a broadly disseminated press release.