Sun Microsystems is once again looking to interpret Reg FD, the rule that seeks to guarantee that everyone gets equal, timely access to corporate earnings and other news that can affect stock prices.
When it released its fiscal second-quarter results on Jan. 24, Sun JAVA posted the full release simultaneously on both its own Web site and via the press release wire service Business Wire. Sun might be the first big company to handle earnings this way, though many companies post earnings on their Web sites shortly -- perhaps minutes -- after releasing the report via a wire service.
"We're working with the SEC to enhance our reporting by leveraging the Internet, which a large portion of the world uses, to provide a more direct link," said Dana Lengkeek, a Sun spokeswoman.
Using Wire's Been The Custom
By longtime custom, companies have released their results initially via Business Wire, PR Newswire, Marketwire, Prime Newswire and other electronic wires that disseminate corporate news to the media and financial Web sites such as Yahoo Finance, where many investors first see the results. Most earnings come out just after the close of regular stock market trading, but the releases often spark big action right away in after-hours trading.
Sun says it continues to try to bring more fairness to the process. Sun's efforts raise some vital questions about the best way to honor the intent of Regulation Fair Disclosure in this age of electronic media, says John Coffee, a professor at Columbia Law School.
"There is no SEC requirement that a company has to use a paid wire service to put its earnings out," he said. "The only requirement is, when the company makes disclosures to some people, it has to make them universal."
That point was the crux of a controversy over Reg FD last July, when Sun at first posted its latest earnings just on its Web page and via e-mail notices, known as RSS feeds, to investors who had signed up to get such feeds. Sun and others say it was likely the first big company to release earnings in that fashion, bypassing traditional paid news wire services until about 10 minutes later.
Some criticized Sun's move as unfair, but how to best comply with Reg FD remains open to debate.
Many investors no doubt are unaware of Regulation Fair Disclosure. The Securities and Exchange Commission passed Reg FD in 2000, seeking to end selective disclosing of important information.
Sun Chief Executive Jonathan Schwartz defended the way the company released its results in July. But Sun has tweaked its policy to post the results through its own Web site and Business Wire at the same time.
The main goal of Reg FD is to ensure that all investors have a level playing field, says Neil Hershberg, senior vice president of global media for Business Wire. He says that was not the case with Sun's earnings release in July.
Some Web surfers couldn't access the Sun site for as much as six minutes after the results were posted, says Hershberg. He says the delay was probably due to a spike in traffic to the site. But six minutes is a lifetime for a fast-moving stock.
"From a technical standpoint, RSS feeds and Web postings by their very nature do not reach all investors on a simultaneous basis because of the architecture of the Internet," Hershberg said.
The disclosure process has always been in flux. Not that long ago, investors had to attend shareholder meetings or read printed reports that might come out days later to get earnings results. Real-time communication is changing things fast, says William Shepherd, an attorney with securities law firm Shepherd, Smith & Edwards in Houston.
"This is an age-old problem of who knows the information first, especially as technology grows," he said. "Whatever you do, there are always going to be complaints."
8-K The Big Requirement
Aside from earnings, the only mandate for complying with Reg FD about any other news that might affect a stock is to file an 8-K form with the SEC, says Gary Brown, an adjunct professor at Vanderbilt Law School. He also chairs the corporate department of the Baker Donelson law firm in Washington, D.C.
An 8-K filing is known as a "current report." It's supposed to disclose any relevant stock data between the required filing of the quarterly 10-Q earnings report and the annual 10-K filings to the SEC. Companies usually will provide such news via a financial news service, but they aren't required to do so.
Changes in Sun's disclosure process reflect the fact that financial reporting is just now starting to catch up with technology, Brown says.
"The real issue for Reg FD is whether you are getting broad public dissemination," he said. "First you need to satisfy the letter of the law, and then you can work toward achieving the spirit of Reg FD."
Siebel Systems, now a unit of Oracle ORCL, was one of the first companies to be penalized in a Reg FD case. The SEC fined Siebel $250,000 for disclosing non-public information at an invitation-only investor conference in 2002.
Source: Investor's Business Daily