Did the Siebel Systems Case Limit the SEC’s Ability to Enforce Regulation Fair Disclosure?
63 Pages Posted: 23 Aug 2019
Date Written: August 20, 2019
We examine whether a shock to the enforceability of Regulation Fair Disclosure (Reg FD) limited its ability to restrict the flow of private information between managers and investors. Initial studies provide evidence that Reg FD reduced managers’ selective disclosure of material information. We test whether the initial effects of Reg FD on selective disclosure have diminished due to the SEC’s challenges in enforcing Reg FD. Specifically, we predict and find evidence that the SEC’s failed litigation attempt in SEC v. Siebel Systems, Inc. likely lowered managers’ perceived costs of selective disclosure and contributed to a return of informed trading by transient institutional investors. We also find that SEC v. Siebel Systems led to an unleveling effect that creates differential private information advantages, even among sophisticated investors. Our results suggest that researchers should exercise caution in assuming that Reg FD broadly restricted private information flows, and our study highlights the importance of enforcement in achieving intended regulatory outcomes.
Keywords: Regulation Fair Disclosure; SEC enforcement, Siebel Systems, institutional investors, selective disclosure, informed trading
JEL Classification: M40, M48, G38, G24
Suggested Citation: Suggested Citation