SEC loses case over Fair Disclosure rule

Information Siebel gave to institutional investors wasn't new, court holds


WASHINGTON - A federal District Court judge in Manhattan has dismissed a lawsuit against Siebel Systems filed by the Securities and Exchange Commission in its effort to eliminate the selective disclosure of financial information by public companies.

The decision in the case, the first to be litigated by the agency under Regulation FD (for Fair Disclosure), could make it more difficult for officials to punish companies accused of favoring some investors.

But commission officials said yesterday that they would continue to enforce the regulation vigorously. And the decision may not be the last word. The agency has 60 days to decide whether to appeal to the 2nd U.S. Circuit Court of Appeals in New York.

The commission filed the lawsuit last year against Siebel, the world's largest maker of customer service software. It accused Siebel's chief financial officer, Kenneth A. Goldman, of violating the regulation when he told institutional investors at two private events in 2003 that Siebel's business activity was "good" and "better" and that there were "some $5 million deals in Siebel's pipelines."

After the meetings, the commission said, some of the institutional investors bought significant blocks of shares. One, Alliance Capital Management, had been betting, by taking a short position, that the company's stock would be declining.

But after the meeting, it both covered that position - and also bought shares on the belief that Siebel's stock price would rise.

The commission also said Goldman's comments were significantly different from public statements made around the same time by Thomas Siebel, the founder of the company who was then its chief executive. The commission said his statements were less positive than Goldman's.

But in an opinion signed Wednesday and made public yesterday, Judge George B. Daniels rejected those claims.

The judge held that Goldman's comments largely repeated other public statements made about the same time by other executives, including Siebel. And the judge criticized the agency's interpretation of Regulation FD, saying it could have the effect of making corporations less forthcoming.

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