The recent Siebel federal district court decision dismissing the SEC's claim of Reg FD violation, the recent ruling by Chancellor Chandler holding that the Disney directors did not violate the business judgment rule and the American Bar Association's recent opposition to government pressures on the attorney-client privilege represent an emerging post-Enron era of corporate America push back on regulatory, enforcement and plaintiffs' lawyers perceived excesses undertaken in response to the Enron era scandals. Hopefully, the shameful Enron era is at its close with independent boards of directors in charge under clear marching instructions and the law violators driven out of the corporate suites.Now the question is whether the civil litigation, compliance and enforcement pendulum has swung too far and should be adjusted. In the Siebel Reg FD matter, the Southern District of New York decision has found that to be the case.
When the Enron scandals hit, policy makers, regulators and the enforcement communities did a fine job of responding to the cries of the public for retribution and reforms. Inthe areas of policy, thoughtful adjustments were made. The enforcement community's actions were dedicated and effective, but so fast moving that expediency in the field may have created approaches that some feel "have crossed the line beyond appropriate practices." So we are now entering a time when courts, professional associations and the political process are being called upon to draw some clear lines as to what is needed for investor protection and what impinges on the ability to take risks for shareholder value.
In Siebel, the SEC claimed that the company violated Regulation FD which prohibits selective disclosure of information to some but not all investors. The suit alleged that at two private meetings with institutional investors, Siebel' s CFO stated that the company's activity levels were "good" or "better," that new deals were coming back into the pipeline, that the pipeline was "building" and "growing" and that "there were some $5 million deals in Siebel 's pipeline." It further alleged that certain attendees then made substantial purchases of Siebel shares. The court granted defendants' motion to dismiss, stating that the overall gist of the CFO's above statements was not inconsistent with previous public statements by the company and did not represent previously undisclosed material information. The court emphasized that literal comparisons between prior public statements and subsequent private meeting statements were not appropriate. In its view, as long as the substance of the subsequent discussions was not material variances, stylistic differences were not actionable.
Perhaps Siebel will be appealed and perhaps it will be reversed. What is important is that the corporate community use the court system, advocacy and lobbying to achieve clear and understandable rules of the game. Sound policy making should be brought to bear to assure the best balance between appropriate public oversight and freeing businesses from costly interferences with their operations.