The SEC has issued Regulation FD, which stands for Fair Disclosure. In essence, the regulation states that a company must make public disclosure of any material nonpublic information that it gives to a broker-dealer, investment advisor, institutional investment manager, investment company, or a holder of the company’s securities. The regulation does not apply when a company gives information in the following situations:
- The recipient is a person who owes a duty of trust or confidence to the company, such as an attorney, investment banker, or accountant.
- The recipient expressly agrees to maintain the disclosed information in confidence, such as by signing a non-disclosure agreement.
- The recipient is a credit rating agency, as long as the purpose of the disclosure is solely for the purpose of developing a credit rating, and the company’s credit ratings are publicly available.
- The recipient is connected to a registered offering by the company, on the assumption that the documents related to the offering will provide sufficiently broad disclosure.
If the disclosure of material nonpublic information is intentional, then the company should simultaneously disclose the information to the public. A disclosure is considered intentional when the person making the disclosure “either knows, or is reckless in not knowing, that the information he or she is communicating is both material and nonpublic.”
If the disclosure is not intentional, then the company must promptly disclose the information. The SEC considers “promptly” to mean “as soon as reasonably practical, (but in no event after the later of 24 hours or the commencement of the next day’s trading on the New York Stock Exchange) after a senior official of the [company]… learns that there has been a non-intentional disclosure by the [company] or person acting on behalf of the [company] of information that the senior official knows, or is reckless in not knowing, is both material and nonpublic.”
The SEC considers an 8-K filing to always be an adequate public disclosure of information. An acceptable alternative to an 8-K filing is to disseminate the necessary information through another method of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public. A good example of such a method is to use a press release that is issued through a news wire service. Several of the wire services offer a combined release service, where they issue both a press release and an 8-K that contains text identical to the press release.
Posting information to the company web site is not considered to be a sufficient level of disclosure. A company could bury key information far down in a subsidiary web page, where it may take days for anyone to locate the information. Also, a web site does not usually employ “push” technology, where information is actively disseminated to users (that is only available if users sign up for Really Simple Syndication, or RSS, feeds). Instead, the typical web site is a passive technology which users must browse in order to locate information. For these reasons, a web site is not an appropriate or accepted way to disclose information.