The SEC's settlement of In the Matter of Christopher A. Black,
announced September 24, is a useful reminder that Reg FD training
and compliance programs can be helpful not just for avoiding
problems but for mitigating or even eliminating corporate penalties
if problems do occur.
The facts asserted by the SEC present
a no-brainer FD violation, a term that also aptly describes the
behavior in question. Mr. Black, the CFO of American Commercial
Lines, sent an email to eight analysts on a Saturday in June 2007
providing "some additional color" on the full year and second
quarter guidance that ACL had recently announced. The "color"
included the expectation that second quarter EPS "will likely be in
the neighborhood of a dime below that of the first quarter", meaning
$0.10 rather than $0.20. This contrasted with ACL's prior public
statement that Q1 and Q2 EPS would be "similar". Mr. Black
apparently sent the email without prior consultation with or review
by anyone else at ACL.
The sequence of events from
here was predictable: stock opens sharply down the following
Monday on unusually high volume, CEO learns of the email, ACL
scrambles to get an Item 7.01 Form 8-K on file by Monday
afternoon. Within two months ACL announced Mr. Black's plan to
leave the company. The SEC commenced enforcement
proceedings, and in the settlement Mr. Black agreed to pay $25,000
and to submit to a cease-and-desist order.
But the SEC determined not
to bring an enforcement action against ACL itself. The SEC noted
that ACL had "cultivated an environment of compliance" through
training programs and compliance policies, including at least two
occasions on which Mr. Black himself received training. ACL's
same-day attempt to cure the Reg FD violation was also helpful, as
were its self-reporting, its "extraordinary cooperation", and its
adoption of remedial policies and additional controls. The SEC
concluded, in other words, that this was a rogue act.
Two principal takeaways here:
- Almost all companies have formal Reg FD compliance policies,
but some do a better job than others of maintaining an
active compliance program, with training, periodic
refreshers, annual certifications, recordkeeping, etc. This
doesn't have to be a major effortóour sense is that the principles
of Reg FD are at this late date pretty well assimilated among
executives and IR professionalsóbut it helps to be programmatic.
- The SEC understands that individuals, whether acting from
malice or carelessness or sheer dimness, can thwart even a solid
compliance system. The keys to managing company exposure are
immediate response, from-the-top contrition and over-the-top