REG FD – A NEW ENFORCEMENT PRIORITY?
In what may signal a new enforcement priority, the SEC filed another Regulation FD case this week. SEC v. Presstek, Inc., Civil Action No. 10-1058 (E.D.N.Y. Filed March 9, 2010). Last year, the Commission brought its first Reg FD case in a considerable period of time, In the Matter of Christopher A. Black discussed here. There, the SEC did not bring an action against the company, only the individual who made the disclosures.
Presstek is an action against the company, a Connecticut based manufacturer, and the former chairman of its audit committee, Edward Marino. According to the complaint, Mr. Marino received an e-mail from the company controller on September 10, 2006. The e-mail stated that performance in both North America and Europe for August was weak and had a negative impact on margin and operating income relative to plan. No announcement of financial performance was planned before early October.
On September 28, 2006, Mr. Marino received a telephone call from Michael Barone, a managing partner of Sidus, a registered investment adviser. The funds managed by the adviser owned almost half a million shares of Presstek. During the telephone call, Mr. Marino told the adviser that the summer had not been as vibrant as expected in North America and Europe, according to notes of the conversation prepared by Mr. Barone and quoted in the complaint. The notes go on to record Mr. Marino as saying, in substance, that “’overall a mixed picture’” for the company emerged for the quarter.
Mr. Barone began selling Presstek shares immediately, sending an e-mail during the call and by the end of the day, had liquidated most of its holdings. The share price closed down about 19%.
The next day Presstek issued a preliminary announcement. It reported that quarterly financial performance was below prior estimates.
The Commission’s complaint alleges violations of Exchange Act Section 13(a) and Regulation FD. The company settled with the SEC, consenting to the entry of a permanent injunction prohibiting future violations of the sections cited in the complaint. As part of the settlement the company agreed to pay a $400,000 civil penalty. In an unusual step the Commission, in its complaint, acknowledged the cooperation of the company citing its remedial measures. Those included revising its corporate communications policies and governance principles, replacing its management team, appointing new independent board members and creating a whistleblower’s hotline.
Mr. Marino is litigating the case. See also Litig. Rel. 21443 (Mar. 9, 2010).