Ex-SEC official shedding light on Regulation FD

Former SEC official Brian J. Lane is using his background to provide insight on Regulation FD and how it will affect the dissemination of company information.

3 min read
Attorney Brian J. Lane returned to private practice just in time for Regulation FD.

Short for "fair disclosure," Regulation FD requires companies to disclose all important information to the public at the same time instead of giving out information on a selective basis to favored analysts or large investors. The U.S. Securities and Exchange Commission rule went into effect Monday, although many companies had already begun to adjust the way they communicate with analysts and investors.

Lane became a partner with the law firm Gibson, Dunn & Crutcher less than a year ago after serving for four years as the director of the SEC's Division of Corporate Finance. Given his background, Lane brings to his job an insider's understanding of the SEC's regulations and demands.

The skeptical view is that now analysts will have to do their work. On Tuesday, Lane chaired an event titled "Cyberspace and the Securities Law" that focused on how corporate attorneys should advise companies to handle the new regulation.

For example, Lane advised companies that they could release updates about their earnings projections as often as they felt capable. This would allow the executives to speak more freely with analysts and investors about where the company stands without violating the new regulations.

At the conference, Intel spokesman Cary Klafter described the chipmaker's disclosure model, which involves regularly posting guidance projections.

"In our case, we use projections on a regular basis," Klafter said. "That enables us to avoid spending a lot of time talking to analysts on a one-to-one basis saying, 'Your estimates are a little high or a little low.' For FD purposes, that turns out to be very good."

Lane praised Intel's model but warned that it is still relatively easy to violate the regulation.

"If someone raises something that's material in a chat room and you say, 'No, that's not true,' and you haven't widely disseminated that, you've just violated Regulation FD."

Lane recently talked with CNET News.com about Regulation FD, how companies will be forced to change some long-standing habits, and the possible effects.

CNET News.com: What will be the overall impact of Regulation FD?
Lane: You'll see a much greater flow of information. More preannouncements, outlooks forward-looking. There is going to be more public disclosure of communication otherwise made in private.

How will this greater flow of information affect the markets?
I think there could be more volatility. That might be the case. The way things used to work, a company would tell the analysts they weren't going to make it, and the analysts would tell chosen institutions and they would start selling. But not everyone would be selling, so the drop wouldn't be that great. Then, when the announcement comes out, the institutions have already bailed out, and it's just the retail investors who are selling. That's how smoothing happened pre-FD.

I think the media was on the outside looking in, and now they're going to get the story sooner. How will FD change the dissemination of information?
I think the media was on the outside looking in, and now they're going to get the story sooner. I think because the media is going to be a player, so, too, will the retail investors.

How will FD affect analysts?
The skeptical view is that now analysts will have to do their work. I don't think this is entirely fair, though. I think that analysts are going to have to rely on sources other than the company for their information.

Will investors begin viewing broker reports with more skepticism?
I think institutional investors already look at analyst reports with some suspicion.

How do you see the system between analysts, investors and companies changing in light of FD?
I think the analysts will get told material information prior to the announcement in an embargoed state, and they will then be able to reply as soon as the conference call ends. I think this will become not uncommon.

How do you advise your current corporate clients to handle FD?
I advise them to consider things like doing periodic information releases so they can speak more freely with investors and analysts.

What is the biggest frustration that you think companies will face in the wake of FD?
I think it will be dealing with the analysts in the post-FD world. Executives will always be thinking, "Is this material, or isn't it?" They like to maintain good relations with their analysts.