Issuer and Officers to Pay Penalties for Regulation FD Violations


On Oct. 21, 2010, the SEC announced enforcement actions against Office Depot, Inc. and its chief executive officer and former chief financial officer in connection with violations of the SEC’s Regulation FD, which restricts selective disclosure of material nonpublic information by public issuers. 

The SEC found that near the end of its second quarter in 2007, Office Depot investor relations made a series of one-on-one calls with analysts in which they signaled, but did not directly state, that Office Depot would not meet analysts’ expectations for the quarter.  Analysts then lowered their estimates for the quarter.  The SEC alleged that the communications were selective disclosures in violation of Regulation FD.  The CEO and CFO orchestrated the calls, but were aware of the changes in the analyst estimates.  Office Depot and the two executives agreed to settle the charges without admitting or denying the findings and allegations. 

Office Depot will pay a $1 million penalty, and the executives will each pay $50,000.  The company’s settlement included unrelated charges that it overstated earnings in 2006 and 2007.  The CEO and CFO also agreed to cease and desist from future violations of Regulation FD.

On Oct. 26, 2010, the Wall Street Journal reported that Office Depot’s CEO reached a mutual agreement with the board of directors to step down.

OUR TAKE:  Investors must receive information at the same time and Issuers will violate Regulation FD whether selective disclosure is express or indirect.  Issuers should ensure that executives and investor relations staffs are educated about Regulation FD and their compliance responsibilities, including the recognition of inadvertent selective disclosure, whether express or indirect.

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