The SEC filed a settled administrative proceeding charging a former head of investor relations with violating Regulation FD. The Commission elected not to charge the company, however, based on its culture of compliance and cooperation. In the Matter of Lawrence D. Polizzotto, Adm. Proc. File No. 3-15458 (Sept. 6, 2013).
Mr. Polizzoto was the head of investor relations for First Solar, Inc., an Arizona based manufacturer of solar modules and power systems. He was also a member of the firm’s Disclosure Committee which focused in part on compliance with Regulation FD.
In June 2011 First Solar received conditional commitments from the DOE regarding about $4.5 million in loan guarantees. Those guarantees related to three company projects: Antelope Valley Solar Ranch I, Desert Sunlight and Topaz Solar. The guarantees would permit the company to obtain low-cost guaranteed financing from the federal government. The program required that First Solar meet certain requirements by the end of the government fiscal year, September 30, 2011.
At an investor conference on September 13, 2011 the company CEO expressed confidence that First Solar would receive the three guarantees. Mr. Polizzotto was present.
Two days later, DOE informed First Solar that it would not provide a guarantee for the Topaz project, which was the largest of the three. Mr. Polizzotto and several other company executives were informed. The group was then told by in-house counsel that while a press release need not be issue the same day, Regulation FD would restrict the ability of the company and its executives in answering questions until a press release disclosing the DOE decision was issued. Executives began working on a press release regarding Topaz.
Subsequently, on September 20, 2011 the U.S. House Committee on Energy and Commerce sent a letter to the DOE inquiring about the loan guarantee program. The letter also requested information about the status of guarantees that were conditional, including those of First Solar. The next morning First Solar’s stock price dropped 8%.
Mr. Polizzoto learned on the morning of September 21 that the Topaz press release would not be issued until the next day. He then drafted Topaz related talking points which he and a subordinate delivered to over 30 analysts that day. The talking points indicated:
- There was a “higher” probability that the company would obtain the guarantees for the AVSR and Desert Sunlight projects but a lower probability for Topaz;
- Analysts were reminded about previously disclosed facts that placed Topaz in a negative light; and
- A rumor was referenced that Topaz might be sold, although the company had not confirmed this point.
Mr. Polizzoto also told at least one analyst and one institutional investor that if they wanted to be conservative they should assume there would not be a guarantee for Topaz. The next morning First Energy issued its Topaz press release prior to the opening of the market. The shares of the company opened down 6%.
The Order alleges that Mr. Polizzoto caused a violation of Exchange Act Section13(a) and Regulation FD. Mr. Polizzoto resolved the proceeding by consenting to the entry of a cease and desist order based on the Sections cited in the Order. He also agreed to pay a penalty of $50,000.
The Commission determined not to charge the company as a result of its cooperation. First Energy “cultivated an environment of compliance through the use of a disclosure committee that focused on compliance with Regulation FD,” according to the SEC’s press release. The company also issued a corrective press release the next day, self-reported and took remedial measure to address the conduct which included conducting additional Regulation FD training for employees responsible for public disclosure.
