SECURITIES EXCHANGE ACT OF 1934
Release No. 46896 / November 25, 2002

ADMINISTRATIVE PROCEEDING
File No. 3-10949


In the Matter of

SIEBEL SYSTEMS, INC.,

Respondent.


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ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER

I.

The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Siebel Systems, Inc. (the "Company" or "Respondent").

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, which Respondent admits, Respondent consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing A Cease-and-Desist Order ("Order").  

III.

On the basis of this Order and Respondent's Offer, the Commission finds that:

A. Respondent

Siebel Systems, Inc. is a Delaware corporation headquartered in San Mateo, California. During the relevant period, the Company's common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on the NASDAQ National Market under the symbol SEBL.  The Company is a provider of customer relationship management (CRM) software and other business applications.

B. Facts

1. Summary

Regulation FD, which became effective on October 23, 2000,1 prohibits issuers from selectively disclosing material, nonpublic information to certain persons - securities analysts, broker-dealers, investment advisers and institutional investors - before disclosing the same information to the public. On November 5, 2001, the Company's Chief Executive Officer ("CEO"), disclosed material, nonpublic information to persons outside the Company at an invitation-only technology conference hosted by Goldman Sachs & Co. ("Goldman Sachs") in California (the "Technology Conference"). In response to questions from the Goldman Sachs analyst who organized the conference, the Company's CEO disclosed that the Company was optimistic because its business was returning to normal. These statements contrasted with negative statements that he had made about the Company's business three weeks earlier, in which he characterized the market for information technology as tough, and indicated that the Company expected business to remain that way for the rest of the year. Prior to the Technology Conference, the Company's investor relations staff knew that the conference would not be simultaneously broadcast to the public. As a result, the Company intentionally disclosed material, nonpublic information at the Technology Conference.

Immediately following the disclosures, certain attendees at the conference purchased Respondent's stock or communicated the disclosures to others who purchased its stock. On the day of the conference, Respondent's stock price closed approximately 20% higher than the prior day's close and the trading volume was more than twice the average daily volume. The public did not have equal access to and was unable to benefit from the information that was disclosed to the attendees at the Technology Conference. Accordingly, the Company violated Regulation FD.

2. Background

On October 17, 2001, the Company reported its third quarter 2001 results. During the third quarter, Respondent's sales and earnings had declined compared to the third quarter of 2000. The Company also missed certain analysts' earnings expectations. In a public conference call to announce the Company's third quarter results, the Company's CEO stated:

Since September 11, we have faced an . . . environment for information technology that has been as difficult as any in the history of the information technology industry. Things have been tough. We think that they will continue to be quite tough in the short term. We have an exceptionally soft market for information technology. . . . Spending for tech products and services continues to slide. We expect things will be quite tough through the remainder of the year.

After the earnings became public, Respondent's stock price declined 19% to $17.38. In the three weeks following the conference call, Respondent and Goldman Sachs discussed Respondent's participation in the Technology Conference. The format of the conference would be a "fireside chat" - an informal question and answer session in which the Company's CEO would respond to questions initially from the Goldman Sachs analyst who organized the conference and then from the audience. In advance of the conference, Goldman Sachs provided the Company with a list of questions that the analyst planned to ask the Company's CEO. Among the questions was whether Respondent had "any evidence that the software market [was] getting any better or worse" in the fourth quarter.2

On October 25, 2001, Goldman Sachs informed companies making presentations at the conference, including Respondent, that certain of its clients desired to have one-on-one meetings with management of the presenting companies at the Technology Conference. Goldman Sachs also stated in an electronic mail message to the Company's IR Director that one of the attendees at the conference held a significant short position in the Company's stock, and may be considering covering that position and purchasing additional stock to establish a long position. On November 1, 2001, Goldman Sachs provided Respondent with an advance list of the attendees for the Technology Conference. The Company's IR Director sent an electronic mail message attaching the attendee list and logistical information to the Company's CEO and its Chief Financial Officer ("CFO"). The list of nearly 200 attendees included broker-dealers, investment advisers, investment companies and institutional shareholders, including the largest institutional holder of Respondent's stock.

3. Goldman Sachs Learns on November 2, 2001 That Respondent
Was Likely to "Set a Positive Tone" at the Technology
Conference on November 5, 2001

On Friday, November 2, 2001, the Company's CFO and IR Director held a conference call with the analyst who organized the Technology Conference to discuss last minute preparations for the conference on Monday, November 5, 2001. Following this call, the analyst prepared a report, without Respondent's knowledge, for inclusion in Goldman Sachs' "U.S. Morning Preview" - an electronic mail message that would be circulated throughout Goldman Sachs for "internal use only" on November 5, 2001, just before the market opened and before the Company's CEO addressed the Technology Conference. In the report, the analyst stated "[a]fter speaking with management, we think there is a good chance [the Company's CEO] sets a positive tone at our software conference. . . . It seems as if business activity has increased and . . . this data point will likely be taken positively this morning."

Respondent's stock closed at $17.29 per share on November 2, 2001. Later that evening, Respondent's IR Director, who was responsible for coordinating the Company's participation at the Technology Conference, transmitted talking points to the Company's CEO for him to use at the conference. The talking points contained information about, among other things, the Company's general financial condition, its management team, its position in the CRM market, product information and market opportunity, all of which was public information. The IR Director prepared the talking points to help ensure that no material, nonpublic information was disclosed at the Technology Conference.

Late in the evening on Sunday, November 4, 2001, the IR Director provided a revised draft of the talking points to the Company's CEO, CFO and others. Again, the talking points contained only public information. They did not contain any information specifically responsive to the Goldman Sachs analyst's prior question as to whether business was improving.

4. The Company Makes Selective Disclosures at the Technology Conference on November 5, 2001

By virtue of his position at the Company, Respondent's CEO had access to information concerning, among other things, the Company's sales pipeline, deal closure rate, trends in its revenues and performance in comparison to prior periods and to projections for both the current period and future periods. Such information reflected that the Company's projected license revenue in the fourth quarter of 2001 was trending upwards and would exceed the license revenue that the Company reported in its third quarter results three weeks earlier. At the time he entered the conference, Respondent's CEO was aware of material, nonpublic information concerning what the Company was observing in its sales pipeline and reflecting a positive trend in the transactions that the Company was completing and expected to complete with its customers.

At 10:00 a.m. on November 5, 2001, Respondent's CEO appeared at the Technology Conference. After a brief introduction, the moderator engaged him in the following discussion:

Moderator: . . ., the software that you sell gives you a good window into sales pipelines3 . . . you've been pretty good in seeing what's going on in the overall economy and what that means for the software sector. I wonder if you could give us an update of what you're seeing after September, maybe how the economy is looking and how the software business is looking during the month of October. Are customers still paralyzed or are we getting back to normalcy?

A: . . . [T]he business decisions appear to be quite normal right now, and so we're pretty optimistic about what we're seeing at this time. People are engaging . . . people are engaging in software evaluations, . . . software selection, . . . vendor negotiations, procurement, installations, . . . contracts are getting signed, . . . they're expanding their existing previous appointments, so right now it appears we're seeing a return to normal behavior in IT buying patterns.

Q: Would you, how would you characterize the sort of sales activity levels and linearity throughout . . . the quarter?

A: I think the linearity of this Q4 will be about what we saw in Q4 of the previous two years. It was, the behavior of the market appears normal. . . .

* * * *

Q: They're still evaluating, they're just slowing down actual signing contracts?

A: They were slowing it down significantly in Q3. Right now, it appears to be, the processes appear to be back to more of a normal rate. It's not, it's not a depressed rate . . . as deals are moving through the pipeline. . . .

Q: I think there were a lot of concerns that Q4 the bottom could just fall out, that the business we saw in September was just a hint of what we're going to see this quarter. It sounds like from what you're saying that business is getting back more to normal. Before September 11th that the bottom is not, does not appear to be falling out.

A: I think that was a legitimate concern, and I shared that concern, and I think I communicated that concern quite clearly in our [third quarter] conference call. I mean if we had seen continued geo-political dislocation, it could have been a nightmare out there in Q4. The good news is we're not seeing that. So, that's, that is a relief for everybody.

These disclosures were based on nonpublic information that was internal to and reflected trends in the Company's business and were a departure from the talking points that the IR Director had prepared.

5. Respondent Did Not Simultaneously Disclose the Statements
Made by its CEO

The Company did not simultaneously disclose the statements that were made by its CEO at the Technology Conference. There was no web-cast of the conference and the Company neither issued a press release nor filed any disclosure on Form 8-K with the Commission concerning its CEO's remarks at the conference.

Although analyst conferences attended by Respondent's management are normally broadcast to the public, the IR Director, and therefore, the Company, knew that the Technology Conference would not be web-cast. On October 11, 2001, Goldman Sachs informed the assistant to the Company's IR Director that the Technology Conference would not be broadcast over the World Wide Web. On November 1, 2001, the Company's IR Director requested her assistant to obtain the links to the web-cast. The IR Director's assistant then informed her that the Technology Conference would not be web-cast. Although the IR Director communicated with the Company's CEO shortly before the Technology Conference began, she did not provide this information to him.

6. The Company's Disclosures Impacted its Stock Price and Trading Volume

At 10:00 a.m., when its CEO began speaking at the Technology Conference, the Company's stock was trading at $18.98 per share. Although he spoke for roughly forty minutes, the Company's CEO made the disclosures identified above within the first ten minutes of his presentation. Towards the end of his remarks, the Company's stock had increased to $19.81 per share. Trading volume during the period of his presentation was heavy, with over 4.6 million shares traded.

Following the disclosures, Respondent's stock price continued to rise. By 1:00 p.m., when the first reports about the comments by the Company's CEO began to appear in the media, Respondent's stock had increased to $20.15 per share or roughly 16.5 % higher than the prior day's close.4 Trading volume for the day exceeded 33 million shares, roughly double the normal daily volume. Certain attendees at the conference either traded Respondent's stock or communicated information to others who traded or were in a position to trade while in possession of the information. For example, one of the attendees purchased 5,000 shares at 10:30 a.m. and an additional 10,000 shares at 11:05 a.m. Another attendee purchased 5,000 shares at 10:53 a.m. and an additional 120,000 additional shares at 11:27 a.m. Similarly, a Goldman Sachs employee attending the conference sent electronic messages to Goldman Sachs' internal message board. In these messages, the Goldman Sachs employee reported the "return to normalcy" and "Q4 linearity" comments made by the Company's CEO at the conference. Goldman Sachs' sales and trading desks had access to these messages, and was the most active firm trading Respondent's stock that day.

IV.

LEGAL DISCUSSION

The Commission adopted Regulation FD to level the playing field for all investors with respect to the disclosure of material, nonpublic information by issuers or persons acting on their behalf. Prior to Regulation FD, small investors were often disadvantaged because they did not have equal access to such information at the same time as large institutional investors and other securities industry professionals. This disparity in access stemmed from the long held view by some that, when it came to the disclosure of material, nonpublic information, certain select investors were entitled to earlier and better access than others. The Commission rejected this notion when it adopted Regulation FD and expressed its view that all investors or potential investors should have equal access to the same information at the same time, regardless of status. In adopting Regulation FD, the Commission recognized that "selective disclosure leads to a loss of investor confidence in the integrity of our capital markets."5 Regulation FD is designed to level the playing field and bolster investor confidence by prohibiting issuers from disclosing material, nonpublic information to a few selected persons prior to public disclosure. Under Regulation FD, an issuer disclosing material, nonpublic information to a few selected persons must simultaneously disclose that information to the public.

In this case, Respondent failed simultaneously to disclose to the public the material, nonpublic information that its CEO disclosed to attendees at the invitation-only Technology Conference. Respondent's selective disclosures benefited those investors at the conference who "were privy to the information beforehand [and] were able to make a profit or avoid a loss" and disadvantaged "those who were kept in the dark."6 As set forth below, Respondent violated Regulation FD.

A. Regulation FD

Regulation FD prohibits an issuer,7 or persons acting on its behalf,8 from selectively disclosing material, nonpublic information to certain persons outside the issuer.9 Regulation FD identifies those persons outside the issuer as: (1) broker-dealers and their associated persons; (2) investment advisers, certain institutional investment managers, and their associated persons; (3) investment companies, hedge funds, and their affiliated persons; and (4) any holder of the issuer's securities under circumstances where it is reasonably foreseeable that such a person would purchase or sell securities on the basis of the information.

Regulation FD distinguishes between "intentional" selective disclosures and "non-intentional" selective disclosures. A selective disclosure is "intentional" when the person making the disclosure knows, or is reckless in not knowing, that the information being communicated is both "material" and "nonpublic."10 Information is material if there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision or if the information would significantly alter the total mix of available information.11Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). Information is nonpublic if it has not been disseminated in a manner making it available to investors generally.12 An issuer who fails to comply with Regulation FD is subject to a Commission enforcement action for violations of Sections 13(a) or 15(d) of the Exchange Act and Regulation FD.13

B. Respondent Violated Section 13(a) of the Exchange Act and Regulation FD

1. Respondent's Disclosures Were Made to Covered Persons

The attendees of the Technology Conference were "person[s] outside the issuer" set forth in Regulation FD.14 Prior to the Technology Conference, Goldman provided the Company's IR staff with the list of the persons who were expected to attend the conference. The Company's IR Director sent the Company's CEO an electronic mail message attaching this list. The list of attendees included broker-dealers, investment advisers, investment companies and institutional shareholders, including the largest institutional holder of Respondent's stock.15 The IR Director also knew that at least one investor was considering whether to convert a short position in the Company's stock into a long position, and that this investor was listed as an attendee on the attachment that the IR Director included in the e-mail to the Company's CEO. Thus, the Company knew going into the conference that it would be attended by persons outside the issuer covered under Regulation FD, including holders of its securities, "under circumstances in which it [was] reasonably foreseeable" that such persons would "purchase or sell the [Company's] securities on the basis of the information" provided at the conference.16

2. Respondent's Disclosures Were Material and Nonpublic

The disclosure by Respondent's CEO that the Company was "pretty optimistic" because it was witnessing "a return to normal behavior in IT buying patterns" and that "the linearity of this Q4 will be about what we saw in Q4 of the previous two years" constituted material, nonpublic information. When the Company's CEO made these statements, he was speaking about what the Company was observing in its sales pipeline. He was answering a question posed by the moderator in which the moderator referenced Respondent's use of its own software to track its "sales pipelines." Thus, the disclosures were based on nonpublic information that was internal to and reflected trends in the Company's business. A reasonable investor would have considered this information important in making an investment decision regarding the Company's stock.

The information was also material because it significantly altered the total mix of available information. The information disclosed at the Technology Conference sharply contrasted with statements made by Respondent's CEO on October 17, 2001, when he explained the Company's third quarter 2001 results in the conference call. His message to the public at that time was that the Company was facing "an exceptionally soft market for information technology" and that things would remain "quite tough" for the rest of the year. His statement that "we're pretty optimistic about what we're seeing at this time" was new information that investors would consider important because it was "good news" that was different than the information that he communicated during the conference call to discuss the Company's third quarter results three weeks earlier:

I think I communicated that concern quite clearly in our conference call [on October 17, 2001]. I mean if we had seen continued geo-political dislocation, it could have been a nightmare out there in Q4. The good news is we're not seeing that.

Certain attendees at the conference who received this information recognized that the Company's CEO was communicating new information about the Company's business because immediately following his disclosures, they purchased Respondent's stock or communicated this information to others who traded.

3. The Company's Disclosures Were Intentional Within the Meaning of Regulation FD

Respondent's disclosures were intentional within the meaning of Regulation FD. A disclosure is intentional when the person making the disclosure knows or is reckless in not knowing that the information he is disclosing is both material and nonpublic. Respondent's CEO knew that his "return to normalcy" and "Q4 linearity" comments were based on internal information concerning what the Company was observing in its sales pipeline and reflecting a positive trend in the transactions that the Company was completing and expected to complete with its customers. He was aware that this information was both material and nonpublic. The IR Director knew that the Technology Conference was not being web-cast or otherwise disseminated to the public but failed to provide this information to the Company's CEO before he made his statements. In the circumstances of this case, the Company knew or was reckless in not knowing that it was selectively disclosing material nonpublic information at the Technology Conference - amounting to an "intentional" selective disclosure within the meaning of Regulation FD.

V.

Based on the foregoing, the Commission finds that Respondent violated Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), and Regulation FD, 17 C.F.R. § 243.100, et seq.

ACCORDINGLY, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Respondent cease and desist from committing or causing any violations and any future violations of Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), and Regulation FD, 17 C.F.R. § 243.100, et seq.

By the Commission (Commissioners Glassman and Atkins dissenting as to the imposition of a penalty in the related civil action).

Jonathan G. Katz
Secretary

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1 17 C.F.R. § 243.100, et seq.
2 The Company's Director of Investor Relations ("IR Director") provided Goldman Sachs' questions to the Company's CEO on November 1, 2001.
3 The Company uses its own software to track the status of pending sales by its sales force and to forecast trends in the market for its software. See Carleen Hawn, The Man Who Sees Around Corners, Forbes, January 21, 2002 at 72, 73-74 ("In November and December [2001] Siebel reps hit clients with `far more product evaluations, demonstrations and visits than in the entire third quarter, and the rate of deal closings was much greater.' All of which, of course, was meticulously tracked by his software. Better yet, [the Company's CEO] says, Siebel is a good leading indicator for the rest of tech.")
4 After reaching a high for the day at $21.32 per share, the Company's stock closed at $20.80 per share, or approximately 20% higher than the prior day's close.
5 Selective Disclosure and Insider Trading, Exchange Act Release No. 33-7881, 65 Fed. Reg. 56,716 (August 15, 2000) (hereinafter, "Adopting Release") (". . . selective disclosure has an adverse impact on market integrity that is similar to the adverse impact from illegal insider trading: Investors lose confidence in the fairness of the markets when they know that other participants may exploit "unerodable informational advantages" derived not from hard work or insights, but from their access to corporate insiders.") See also H.R. Rep. No. 100-910 (1988) ("The investing public has a legitimate expectation that the prices of actively traded securities reflect publicly available information about the issuer of such securities. . . . [T]he small investor will be -- and has been -- reluctant to invest in the market if he feels it is rigged against him.")
6 Adopting Release at 56,716.
7 Rule 101(b) of Regulation FD defines an "issuer" as any issuer with a class of securities registered under Section 12 or which is required to file reports under Section 15(d) of the Exchange Act.
8 Rule 101(c) of Regulation FD defines a "person acting on an issuer's behalf" as, in part, senior officials of the issuer or any other officer, employee, or agent of the issuer who regularly communicates with securities market professionals or the issuer's security holders. In addition, Rule 101(f) defines "senior official" as any "director, executive officer . . . investor relations or public relations officer, or other person with similar functions."
9 17 C.F.R. § 243.100, et seq.
10 17 C.F.R. § 243.101(a). A disclosure is "non-intentional" when the person making the disclosure does not have that mental state. In its Adopting Release, the Commission observed that "in the case of a selective disclosure attributable to a mistaken determination of materiality, liability will arise only if no reasonable person under the circumstances would have made the same determination." Adopting Release, 65 Fed. Reg. at 51722.
11 Regulation FD applies the definition of "materiality" established by existing case law. See Adopting Release at 51721.
12 Adopting Release, 65 Fed. Reg. at 51721.
13 Adopting Release, 65 Fed. Reg. at 51726.
14 17 C.F.R. § 243.100(b)(1).
15 See 17 C.F.R. § 243.100(b)(1)(i)-(iv).
16 17 C.F.R. § 243.100(b)(1)(iv).