Suite 1400 One Central Park Plaza
222 South Fifteenth Street
Omaha, Nebraska 68102
April 26, 2000
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
RE: Proposed Regulation FD, File No. S7-31-99
Dear Mr. Katz:
Proposed Regulation FD addresses a major concern of the Commission by prohibiting the selective disclosure of material non-public information. However the overbroad nature of Regulation FD could disrupt many public companies' information disclosure practices. Consequently, Regulation FD may operate as a regulatory tourniquet and impede the flow of valuable information to our capital markets.
Therefore, I urge the Commission to reconsider proposed Regulation FD in favor of a narrowly drawn proposal designed solely to prohibit the intentional selective disclosure of material non-public information. However, if the Commission decides to approve and implement a form of proposed Regulation FD, I offer the following specific comments intended to loosen the constraints proposed Regulation FD would have on a public company's information disclosure practices.
Regulation FD would regulate disclosures by "an issuer, or any person acting on its behalf." The only Commission guidance on this point provides that the actions of those company officials, employees or agents not authorized or designated by the issuer to disclose information to the media, analysts or investors will not result in liability on the part of the issuer. Nevertheless, disclosures by officials, employees or agents of a company who are not specifically authorized to disclose information may result in issuer liability due to the ambiguity of the Commission's guidance.
For example, take the case of a large public company's division manager or vice president who posts material non-public information on an Internet chat room site for the sole purpose of correcting anonymous rumors. Even if we assume that this manager or vice president did not have express authority to make disclosures to the media, analysts or investors, the issuer may still be faced with liability issues. The door would remain open for the Commission to pursue issuer liability based on an implied or apparent authority theory. Thus, Regulation FD could still apply to hundreds of persons in an organization. Proposed Regulation FD is too broad for any public company to effectively manage. Regulation FD should be revised so it only applies to disclosures by "an issuer, its directors and executive officers."
By regulating the disclosure of information "to any other person outside the issuer," the Commission will severely disrupt public companies' normal business operations. The Commission's current guidance says that persons bonded by duties of trust or confidence are proper recipients of material non-public information. In the event the Commission chooses to adopt a form of Regulation FD, the Commission should further exempt persons engaged with the issuer in business communications who have no intent to trade on the issuer's securities or disclose the issuer's material non-public information. Such a business communication exemption would replace the need for confidentiality agreements under the current proposal.
The Commission's proposed requirement that "intentional" disclosures must be "simultaneously" disclosed to the public should be the only disclosure obligation placed upon issuers. "Intentional" encompasses those disclosures made by an individual who either knew prior to making the disclosure, or was reckless in not knowing, that he or she would be disclosing information that was material and non-public. By regulating "unintentional" disclosures, or those made by honest mistake, the Commission is not furthering its objective -the prohibition of selective disclosures of material non-public information.
However, in the event the Commission chooses to proceed with its preliminary decision to regulate "unintentional" disclosures, the following comments should be noted:
The Commission should revise proposed Regulation FD to establish a narrowly drawn proposal that would prohibit the intentional selective disclosure of material non-public information. Chairman Arthur Levitt has been quoted as saying "Quality information is the lifeblood of strong, vibrant markets." Mr. Levitt's statement reinforces my position that overbroad regulations should not impede the flow of valuable information to our capital markets. If the Commission chooses to adopt Regulation FD, as proposed, valuable information that once found its way to the markets will likely remain confidential due to actual or perceived increased risks of liability.
/s/ Guy Lawson