Judge dismisses SEC disclosure complaint against Siebel

A U.S. Securities and Exchange Commission (SEC) complaint against Siebel Systems charging the company with violating disclosure rules was dismissed Thursday by a federal judge, who ruled that the SEC overreached by excessively scrutinizing vague comments made by Siebel executives at a dinner meeting with analysts.

The SEC’s June 2004 lawsuit against Siebel marked the second time it went after the company for violating Regulation FD (Fair Disclosure), a rule enacted in 2000 that bars companies from selectively disclosing information not publicly available. Without admitting guilt, Siebel settled with the SEC in 2002 over the first violation and paid a $250,000 fine.

This time, Siebel let the case progress in court. Judge George Daniels of the U.S. District Court for the Southern District of New York granted Siebel’s dismissal motion on Thursday, writing in his decision that the SEC failed to show how the comments made by Siebel executives at a private dinner differed from the company’s public statements about its financial condition and sales forecast.

“It would appear that in examining publicly and privately disclosed information, the SEC has scrutinized, at an extremely heightened level, every particular word used in the statement, including the tense of verbs and the general syntax of each sentence,” Daniels wrote in his decision. “Such an approach places an unreasonable burden on a company’s management and spokespersons to become linguistic experts, or otherwise live in fear of violating Regulation FD. . . . [This approach] has a potential chilling effect which can discourage, rather than, encourage public disclosure of material information.”

The decision exonerates Siebel’s chief financial officer, Kenneth Goldman, and senior executive Mark Hanson, whose comments at an April 2003 dinner arranged by Morgan Stanley & Co. Inc. sparked the SEC’s complaint.

The SEC also charged Siebel with failing to implement adequate controls to prevent the selective dissemination of material information. Because the executive comments at issue don’t count as private disclosures of non-public information, the SEC’s complaint about Siebel’s controls has no basis, Daniels ruled.

Siebel is celebrating its triumph over the SEC. “This was a win not only for Siebel but for all public companies trying to do the right thing,” Siebel counsel Kathleen Sullivan said in a prepared statement. “We contested the SEC’s claims in order to exonerate the company and its executives and to bring clarity to an important issue that was mishandled by the regulators.”

An SEC spokesman declined to comment on the matter, but said staff there is reviewing the judge’s ruling. The SEC has not yet made a decision about whether to appeal.