11.03.2010
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Updates
The SEC recently settled a Regulation FD action against Office Depot and several of its executives. This Update summarizes the key issues addressed in this action and offers practical guidance.
Background on the Office Depot Enforcement Action
The SEC charged that the CEO and then-CFO of Office Depot, in an effort to encourage analysts to revise downward their sales and earnings forecasts for the second quarter of Office Depot’s 2007 fiscal year, arranged private calls with eighteen analysts who followed the company. During those calls, begun just eight days before the end of the quarter, the director of investor relations referred the analysts to recent earnings statements by comparable companies that discussed the effect of the slowing economy, and reminded them of statements made by Office Depot at the beginning of the quarter that referenced the softening economic climate. Although Office Depot was careful not to state directly that it would not meet analysts’ expectations for the quarter, the SEC took the position that Office Depot's statements nevertheless communicated that very message.
Following the conversations, 15 of the 18 analysts lowered their earnings expectations for the quarter. After several analysts expressed concern about the lack of a company press release regarding earnings, the CFO asked the director of investor relations to provide the company’s top institutional investors with the same talking points given to the analysts. Six days after the initial calls, Office Depot filed a current report on Form 8-K with the SEC in which it announced reduced expectations for sales and earnings. Between the time of the first calls and the filing of the Form 8-K, Office Depot’s stock dropped almost 8%.
Practical Tips More Active SEC Enforcement of Regulation FD. This SEC action, the third in little more than a year, should serve as an additional reminder that the SEC has become more aggressive in policing potential Regulation FD violations. A few takeaways from the Office Depot case include:
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Additional Information
This Update is only intended to provide a summary of the key issues addressed in the SEC's enforcement action. You can find a copy of the SEC's press release regarding this enforcement action at http://www.sec.gov/news/press/2010/2010-202.htm.
© 2010 Perkins Coie LLP