Controlling Corporate Speech: Is Regulation Fair Disclosure Unconstitutional?

Abstract

We analyze whether Regulation Fair Disclosure, SEC Chairman Arthur Levitt's crowning achievement, violates the First Amendment. Regulation FD requires that a company that discloses material non-public information to certain private audiences must also make that information public, subject to certain safe-harbors. The Regulation solely targets speech, acting either to compel it to a public audience or as a burden on private disclosure. Part I examines the reach of Regulation FD, the enforcement actions to date, and currently available empirical data. Part II provides an introduction to the interaction of the First Amendment and SEC regulations affecting speech. Part III broadens the analysis to include regulations compelling or burdening commercial and mixed commercial/non-commercial speech, and applies these lessons to Regulation FD in light of the clear trend towards greater protection of corporate speech. Finally, Part IV analyzes the SEC's justifications for Regulation FD and evaluates how effectively they are achieved. We conclude that given the poor fit between the SEC's means and ends, Regulation FD should not survive a constitutional challenge.

Keywords: Government regulation, fair disclosure, selective disclosure, First Amendment, insider trading