Mitigating Risk: Who’s in the Room?

The SEC, rightfully so and perhaps long overdue, is flexing its enforcement muscle with regard to Reg FD and how companies disclose material non-public information.
We all know the drill by now and what public companies are supposed to do. Yet sometimes at private meetings with analysts and investors, management inadvertently says something it shouldn’t, and violates Reg FD. If there’s any unusual trading the next day, watch out.
While it is perfectly acceptable and even good practice for management to meet with analysts and investors from time to time, one way to mitigate the risk of Reg FD violation is to have an IR professional present at every meeting, or at least at the group meetings.
I know what you are thinking…”What a self-serving statement.”  Nevertheless, competent, experienced IR professionals know how to counsel management on what to say. More importantly, they can be right there, ready to intercede, when sensitive questions come up or to prepare a press release should the accidental comment be made that should really be disclosed widely.
Recently, the SEC began an investigation into Reg FD violation by generic drug maker Mylan, Inc., following a private meeting it held. I do not know if an IR professional was in the room, and even if there was, there would be no guarantee that harmful comments would not be made. However, at least in theory, if an IR pro was there, the risk of a disclosure violation would have been significantly reduced. And mitigating risk is really what it’s all about. Just ask your D & O insurance broker.
Reg FD has been around since the year 2000, and up to now, there have been few cases involving its enforcement.  Word on the Street and from Washington D.C., however, is “Beware.”  With financial reform now underway, things are about to change.


Roger Pondel,