SEC action against IR boss not a ‘gotcha’ ruling

Sep 16, 2013
<p>Lawyer warns that vigilance and culture of compliance are needed</p>

In light of the recent SEC action against the former IRO of energy company First Solar, other IR professionals may be left wondering what advice they might be able to take away from the incident.

Lawrence Polizzotto, formerly vice president at the solar power firm, tipped analysts and investors that his company was unlikely to receive a loan guarantee from the US government ahead of a press release the following day. The SEC, which issued action against Polizzotto but not his firm, advised that companies can minimize the impact of such a violation through robust compliance programs and prompt corrective action.

The regulator’s press release identifies a number of factors that contributed to its decision not to charge First Solar, including the cultivation of a compliance disclosure committee, the quick discovery and reporting of the incident, and agreeing to provide additional Reg FD training for employees.

Michael Littenberg, a partner at law firm Schulte Roth & Zabel, further advises that IROs should not be especially concerned about recent events. ‘Remember, enforcement action arising out of Reg FD is pretty rare,’ he says. ‘It’s been in place for 13 years now, with only a handful of SEC enforcement actions, so IROs should not take away from this most recent enforcement action that they are specifically being targeted.’

Littenberg goes on to say that there are ‘definitely a few important takeaways for IROs and their companies that come out of this enforcement action’, however.

‘First, it reinforces that, as an IRO, you must have an appreciation and understanding of Reg FD,’ he explains. ‘As is the case for other senior officers, there can be consequences if you ever violate it.

‘Second, when a company has determined that there has been a violation, it needs to move quickly. In this and another fairly recent enforcement action, the SEC gave credit to the companies for taking prompt corrective action and self-reporting the violation. In First Solar’s case ‒ in part, for these reasons ‒ the IRO alone was censured.

‘Finally, it reinforces the point that companies need a culture of compliance. This is something the SEC has focused on in Regulation FD enforcement actions. Companies get credit when they take compliance seriously, including through adequately communicating policies and procedures and employee training.’

Littenberg adds that Reg FD ‘should not be viewed as a ‘gotcha’ rule – the SEC wants compliance, rather than a significant number of enforcement cases. As shown by recent Regulation FD enforcement actions, the SEC tends to give companies credit when they have the right policies and procedures in place and take prompt corrective action, so even if there is a rogue employee, the entity itself can remain unscathed.’

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