We read with great amusement the article in the WSJ where an anonymous hoaxer would call in to earnings conference calls, impersonating an analyst, and ask nonsensical questions full of jargon. We thought we'd take a moment to use the incident to remind readers of a highly anomalous element of Regulation FD.
Regulation FD encourages the use of webcasts and conference calls open to the entire public. The Regulation essentially prohibits deliberate selective disclosure of material developments, a response of sorts to the Supreme Court's poor reasoning in Dirks. Rule 101(e) defines public disclosure as any method of disclosure "reasonably designed to provide broad, non-exclusionary distribution of the information to the public." As the Commission has noted, "[t]his definition was designed to permit issuers to make use of current technologies, such as webcasting of conference calls, that provide broad public access to issuer disclosure events." Exchange Act Release No. 43154 (August 15, 2000). Thus, regulation FD encourages the use of non-exclusionary dissemination over the Internet. According to the release:
- conference calls that interested members of the public may attend or listen to either in person, by telephonic transmission, or by other electronic transmission (including use of the Internet). The public must be given adequate notice of the conference or call and the means for accessing it.
Thus, the conference call that anyone can listen in on has become common place, a byproduct of Regulation FD. Of course, Regulation FD only gives the public an opportunity to listen, not to ask questions. As a result, the hoaxer in these calls has apparently been impersonating a real analyst in order to obtain the right to question management.
The anomaly? While the public is invited (including all analysts), they may not attend. Thus, Regulation FD allows disclosure to be considered disseminated to the public without any evidence that the public actually heard the information. Imagine a small public company that webcasts information, releases material non-public information (after notice) but most shareholders and even the small number of analyst following the company do not attend. For Regulation FD purposes, the information is considered disclosed to the public. Moreover, the material information might be unavailable to anyone who did not attend to call or webcast.
What ought the Commission to do about this? Require that the webcast or conference be posted in a place that can be accessed by those who did not participate. It doesn't prevent material information from being disclosed but it does make the information available to everyone.