On August 20, 2019, the SEC charged a pharmaceutical company with violations of Regulation FD based on its sharing of material, nonpublic information with sell-side research analysts on two separate occasions without also disclosing the same information to the public.
The SEC found that on two separate occasions in June 2017, the company selectively disclosed material information to analysts regarding its correspondence with the U.S. Food and Drug Administration (FDA) about the pending approval of a drug the company was developing. According to the SEC, one day after a publicly-announced meeting with the FDA regarding the new drug, the company sent private messages to sell-side analysts describing the meeting as “very positive and productive.” The company’s stock price closed up to 19.4% on heavy trading volume the next day prompting an inquiry from the New York Stock Exchange (NYSE) about whether any material information might be causing the sudden rise in a company’s stock price. At that time, the company had not issued a press release or made any other market-wide disclosure about the meeting.
According to the SEC, prior to the market open the following morning, the company issued a press release announcing that it had provided additional information to the FDA regarding the new drug, but did not yet have a clear path forward regarding the approval of the drug. The company’s stock price declined approximately 16% in pre-market trading following the announcement. The SEC found that in a call and email to sell-side analysts after the press release was issued but before the market opened, the company once again selectively disclosed previously undisclosed details about its meeting with the FDA and the information it had subsequently submitted to the FDA. The analysts then published research notes containing these details, and the company’s stock rebounded, closing down only 6.6% for the day. The SEC found that at the time of these selective disclosures, the company did not have policies or procedures regarding compliance with Regulation FD.
The company consented to the SEC’s order without admitting or denying the findings and was ordered to cease and desist from future violations of Regulation FD and Section 13(a) of the Securities Exchange Act of 1934. The company agreed to pay a monetary penalty.
The SEC has brought a number of enforcement actions for violations of Regulation FD, although it has been some time since the SEC’s last enforcement action relating to selective disclosure.
The SEC’s order can be found here: https://www.sec.gov/litigation/admin/2019/34-86708.pdf.