US regulators suffered a setback on Thursday when a New York judge rejected their finding that a technology company had breached a flagship rule aimed at stopping leaks of market sensitive information to favoured analysts and investors.
District judge George Daniels dismissed the case brought by the Securities and Exchange Commission against Siebel Systems, the software company.
He accused the chief US financial regulator of enforcing Regulation Fair Disclosure, which took effect in 2000 and is supposed to ensure companies release “material non public” information to all investors at the same time, “in an overly aggressive manner”.
It was the first time a public company had challenged SEC charges relating to alleged violations of the regulation.
Siebel said it had contested the SEC charges to exonerate the company and “bring clarity to an important issue that was mishandled by regulators”.
“This was a win not only for Siebel but for all public companies trying to do the right thing.” Last year the SEC accused Kenneth Goldman, Siebel's chief financial officer, of making selective disclosure of positive information about the company's business activity levels and future deals to institutional investors at a private meeting in April 2003.
It said certain investors who went to the meeting immediately made substantial purchases of Siebel's shares.
The SEC contrasted Mr Goldman's positive statements with supposedly downbeat public comments by Thomas Siebel, the company's founder and chairman, during conference calls with analysts, also in April 2003.
Judge Daniels said the information provided by Mr Goldman, relating to future deals worth $5m, was in the public domain because Mr Siebel had referred to it in his conference calls.
Although their choice of words were not identical, the judge said Mr Goldman and Mr Siebel had provided the same information. Judge Daniels said: “Applying Regulation FD in an overly aggressive manner cannot effectively encourage full and complete disclosure of facts reasonably deemed relevant to investment decision making. “It provides no clear guidance for companies to conform their conduct in compliance with Regulation FD. Instead, the enforcement of Regulation FD by excessively scrutinising vague general comments has a potentially chilling effect which can discourage, rather than encourage, public disclosure of material information.”
The SEC has not decided whether to appeal. It has brought charges against six other companies for alleged violations of Regulation FD, all of which ended in settlements.