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SEC Will Go Easy on Rule FD, Director Says

The SEC will not aggressively enforce the recently adopted Rule FD, or fair disclosure rule and will only prosecute those cases that are clearly in violation of the rule, said Steve Cutler, a deputy director for the SEC's division of enforcement.

"This is not an issue where we are looking to tack up hides on the shed door," he said, speaking to lawyers attending a seminar recently sponsored by the Practising Law Institute of New York.

Rule FD requires all companies that issue securities to make public all statements about the company's growth, earnings and operations. The rule is designed to keep the flow of information open to all investors and prohibits selective disclosure to industry insiders.

"[Selective disclosure] looked like insider trading from our perspective," Cutler said. If a company discusses anything relating to its earnings, growth or operations, it must issue a press release within 24 hours of making the statement.

The new rule has prompted a flood of calls to the SEC from executives and compliance directors who want to know under what circumstances they need to issue public statements.

"It all depends on what a reasonable investor will care about," Cutler said. Companies need to be especially careful when making statements about the future, he said. "There's a big difference between an issuer making a prediction and between saying, Here's what we've done'," he said.

The SEC is fielding more calls on Rule FD than it has on any other issue, Cutler said. Questions can be directed to a hotline established by the SEC at 202-942-4540.

The Investment Company Institute of Washington has opposed the rule, claiming fund companies will stop disclosing information altogether, fearing they will be in violation of the rule if they talk to analysts or the media without issuing a statement. But those fears are greatly exaggerated, Cutler said.

"We think there's been an overreaction and we think that lawyers are doing a disservice to their clients if they tell them to say nothing," he said.