TheCorporateCounsel.net

When Reg FD was adopted almost 25 years ago, its objective was to level the playing field among all investors and eliminate the problem of companies providing preferential access to material information to favored investors.  A recent post on “The CLS Blue Sky Blog” says that Reg FD isn’t working very well when it comes to private investor meetings, and suggests that the only viable solution to the problem may be to ban those meetings:

The blog identifies three possible solutions to the preferential disclosure problem that have been suggested.  The first, and most extreme, is an SEC ban on private meetings. The second involves reliance on updates to NIRI’s standards of practice & ethical standards that require companies to provide fair and equal access to all investors and that would essentially end private meetings. The third alternative involves enhanced efforts to ensure that MNPI is not shared during private meetings.  It says that the results of a new study evaluating each of these alternatives suggest that a ban on private meetings may turn out to be the only solution that will prevent preferential disclosure:

Should the SEC prohibit private meetings altogether? Data from our study alone cannot conclusively answer this question. However, our results show that the current flexibility in Reg FD allows IROs to disclose different information to preferred investors, suggesting that Reg FD is not fully meeting its stated goals. Further, the SEC’s focus on materiality consideration does not appear to be an effective solution. When taken in conjunction with prior research that documents informational advantages from private meetings, our results suggest that regulators consider eliminating private meetings if they wish to eliminate preferential disclosure and truly create a level playing field as was initially intended with Reg FD.

The study’s authors suggest that one way to implement a ban on private meetings would be to require all investor meetings to be publicly webcast, which is a practice that some companies already follow.

– John Jenkins