Client Alert

SEC Continues to Prosecute Regulation Fair Disclosure Violations

November 23, 2010

Stephen D. Cooke, Thomas A. Zaccaro, Adam D. Schneir & James M.J. Herriott

The Securities and Exchange Commission recently settled enforcement actions against Office Depot, Inc. and two of its former top executives for violating or causing violations of Regulation Fair Disclosure (Regulation FD). According to the SEC, Office Depot, and its then CEO and CFO, selectively signaled to analysts and institutional investors that the company would not meet analysts earnings estimates for the second quarter of 2007. These selective disclosures began nearly one week before the company publicly disclosed negative sales and earnings information and were accomplished through a wink and nod type of approach, rather than direct statements about the company itself. Indeed, according to the SECs allegations, Office Depot did not directly state that it would not meet analysts estimates, but rather made references to recent public statements of comparable companies regarding the impact of the slowing economy on their earnings, and reminded analysts about its own cautionary public statements earlier in the year. These calls, which were allegedly designed to encourage analysts to revise their estimates downward, had their desired effect analysts promptly lowered their quarterly estimates.

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