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Regulatory intelligence

IMPACT ANALYSIS: SEC selective disclosure case reminds companies of need for Reg FD compliance program

The U.S. Securities and Exchange Commission (SEC) settlement with drug company TherapeuticsMD, Inc. over the selective disclosure of material, non-public information highlights the compliance risks involved in corporate relationships with sell-side research analysts.

The case, in which TherapeuticsMD agreed to pay a $200,000 fine to resolve charges that it violated the SEC’s fair disclosure rule, Regulation FD, underscores that selectively disclosing such material information — whether to institutional investors, securities analysts or other securities professionals — is strictly prohibited.

The case also serves as a reminder to all public companies of the importance of policies and procedures for handling non-public information.

TherapeuticsMD case

According to the SEC, TherapeuticsMD committed “violations of Regulation FD in connection with its sharing of material, nonpublic information with sell-side research analysts without also disclosing the same information to the public.”

The SEC alleged that twice in 2017 the company selectively shared material information about its interactions with the U.S. Food and Drug Administration (FDA) concerning its potential approval of a hormone therapy for a painful condition triggered by menopause.

The SEC said on May 31, 2017, the company publicly announced that it would hold a meeting with the FDA two weeks later to discuss a deficiency the FDA identified in the company’s new drug application for its only drug in the FDA review pipeline.

On June 15, 2017, after the meeting with the FDA, the company sent messages to analysts describing it as “very positive and productive.” TherapeuticsMD’s stock closed up 19.4% the next day, even though it made no public disclosures about the meeting, the SEC said.

A month later, however, the company announced in a press release that it had submitted additional information to the FDA, “but did not yet have a clear path forward regarding its new drug application.” TherapeuticsMD’s stock price declined approximately 16% in early morning trading following the announcement.

The same day, shortly after the issue of the press release and still before the market opened, the company selectively shared further previously undisclosed details about the June FDA meeting with analysts via a call and emails related to the information it had subsequently submitted to the FDA.

After all of the analysts published research notes containing those details, its stock price rebounded from an earlier decline, to close down only 6.6% for the day, the SEC said.

The SEC’s order found that, at the time of these selective disclosures, TherapeuticsMD lacked policies or procedures in place regarding Regulation FD compliance.

The SEC order found that the company violated Regulation FD and Section 13(a) of the Securities Exchange Act of 1934. Without admitting or denying the findings, the company agreed to settle by consenting to a cease-and-desist order and a civil monetary penalty of $200,000.

Refresher on Reg FD

Reg FD was adopted in August 2000 and was intended to create a level playing field for all investors to access material, non-public information. The primary concern was that selective disclosure to analysts and institutional investors of material non-public information can erode investor confidence in the integrity and fairness of the securities markets.

Generally, the rule states, no person acting on behalf of a company may make an intentional disclosure of material non-public information to market professionals or shareholders unless public disclosure of such information is made simultaneously.

Also, if a company or individuals at a company, make inaccurate, incomplete, or misleading disclosures inadvertently in periodic or current reports, or if they trade, or insiders trade while in possession of information, the public must be informed.

Material, non-public information

Information is deemed “material” if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision.

SEC guidance suggests that the following should be treated with caution as potentially material information: earnings and financial data, mergers, acquisitions, tender offers, joint ventures or changes in assets, changes in management or auditors, new products or developments regarding customers or contracts, and events regarding a company’s securities.

The TherapeuticsMD action reinforces the need for any company with government regulatory exposure to develop policies, procedures, and best practices governing the disclosure of such important information. For a business like TherapeuticesMD, this includes soliciting FDA feedback and meetings during development and the progression toward approvals; however, such information undoubtedly can move stock prices and must be handled carefully.

Practical suggestions for managing Reg FD policy

Although Reg FD does not require companies to adopt policies and procedures to avoid violations, the SEC has clearly stated that it expects companies to use policies as a safeguard. The SEC has signaled that implementation and adherence to an appropriate policy may often be relevant in determining whether selective disclosure was intentional.

A well-drafted communications policy should enable a company to develop consistent disclosure practices, reduce the likelihood of inadvertent disclosure, and enable officers to decline requests for information that the company does not wish to disclose publicly. Such a policy should establish specific review protocols for all external communications, including earnings calls, analyst meetings, and press releases.

Businesses should establish a record that collects the company’s public statements (SEC filings, press releases, social media postings) and track whether and how information has been disclosed to the public through those media. If outside vendors assist with such filings or social media posts, they should be trained on Reg FD compliance as well and monitored for ongoing policy adherence.

The SEC can take action against the company whose information was selectively disclosed but also against the responsible employee, particularly control persons and authorized spokespersons.

Regulation FD training should therefore be required of all appropriate employees, using examples of the types of material non-public information in connection with the regulatory imperative that employees could encounter.


This article was written by Todd Ehret, a Senior Regulatory Intelligence Expert for Thomson Reuters Regulatory Intelligence, and Julie DiMauro, a Regulatory Intelligence Expert for Thomson Reuters Regulatory Intelligence.


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