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Siebel in Reg FD Trouble Again — What Were They Thinking?

You probably saw in the business news that Siebel Systems has gotten itself into Regulation FD (Fair Disclosure) trouble again. See the Securities Litigation Watch for a trenchant summary, along with links to the primary SEC documents. My own take on it is in the extended post.

This case fits into the category of “what were they thinking?” According to the SEC’s complaint, the Siebel CFO and its investor-relations guy were doing a road show. They met with several different institutional investors.

At one of these investor meetings, the CFO allegedly made comments about the pipeline looking good, and then did so again at a private dinner with six investors, hosted by Morgan Stanley. This was supposedly contrary to the cautious public guidance the company had previously released.

Surprise, surprise: The stock moved up the next day. Apparently, some of the institutional investors bought in (in one case, liquidating a short position and taking a long position).

Rumors started circulating about what the CFO had said. An investor posted a message on a board, saying, “CFO speaking positively on business conditions at an event last night.”

Some or all of this attracted the SEC’s attention, especially since Siebel had been in Reg FD trouble already, just six months before.

The Siebel IR guy was at all these investor meetings and at the Morgan Stanley dinner. According to the SEC, the IR guy “did not assess whether Goldman [the CFO] had disclosed material nonpublic information at the meeting, did not counsel Goldman not to disclose material nonpublic information about current business conditions, and made no effort to ensure that Goldman discussed only information that had already been publicly disclosed when he appeared at the Morgan Stanley dinner a few hours later.”

The SEC is suing the company, the CFO, and the IR guy, for the selective disclosure, and because they failed to follow up with a public disclosure. The SEC is seeking civil penalties against all concerned.

This case will undoubtedly settle. The settlement can be expected to involve a consent decree that requires Siebel Systems to implement stringent controls on its investor-relations program.

Moreover, the company — and the two executives — likely will have to disclose the settlement in 10-Ks, proxy statements, and the like for a long time to come.

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