With last week's turbulent stock market as the backdrop, on August 24, host Jim Cramer read aloud on his CNBC program Mad Money an e-mail he had just received from Tim Cook, CEO of Apple Inc. According to Cramer, Cook's e-mail stated that, based on performance updates Cook had received, Apple was continuing to experience strong growth in its business in China and its performance so far in the quarter was reassuring. Following this, Apple's stock price increased, ending the day up 8.7% on a day of widespread market decline.

The information in Cook's e-mail was widely reported by the media and another CNBC journalist posted the text of the e-mail on Twitter. Apple did not, however, issue a press release or submit a Form 8-K to the SEC with the information revealed in the e-mail.

The SEC's Regulation FD (Fair Disclosure) includes rules designed to prevent a practice known as "selective disclosure" by reporting companies. Under Regulation FD, whenever a reporting company or a key company representative discloses material nonpublic information to a market professional (such as a broker-dealer or investment adviser) or to a security holder under circumstances in which it is reasonably foreseeable that the security holder may trade on the basis of the information, the company must disclose the information to the general public:

In essence, the purpose of these requirements is to level the informational playing field for investors by banning companies from sharing information privately with favored investors, who can then gain a market advantage over everyone else.

Regulation FD and related SEC guidance clarify which types of disclosure satisfy the public disclosure requirement. Companies can satisfy the requirement by:

Particularly when disclosing key information like earnings data, companies often use more than one approved means of public dissemination out of an abundance of caution. For example, a company may release information in a press release, promptly file a Form 8-K furnishing the press release and then also post the press release to the company website.

SEC guidance on Regulation FD suggests how disclosure of material nonpublic information to journalists might be analyzed. The guidance states that generally, ordinary-course disclosures to parties like news organizations, customers and suppliers do not raise concerns under Regulation FD. The guidance reasons that, even though these parties may conceivably also be company security holders, it ordinarily would not be foreseeable for them to trade on the basis of the information included in ordinary-course communications. It is instead more reasonable to assume they simply use the information for its intended business purpose (see SEC Release No. 34-43154 at II.B.1.a and footnote 27).

In the case of a disclosure to a journalist, the intended purpose of the disclosure might presumably be for the journalist to report the information to the public, instead of trading on the information, even if that journalist also happens to be a security holder. Despite this, in practice companies often treat their disclosures to individual journalists as if they were selective disclosures subject to Regulation FD and therefore simultaneously disclose the information through an approved means of public dissemination.

Legal commentators who have analyzed last week's sequence of events involving Apple under Regulation FD have come to several different conclusions. It remains to be seen whether these events will occasion any SEC investigation or other action. Regardless of the outcome, the events highlight that reporting companies and their securities counsel must develop a fluency with Regulation FD.

Practical Law is featuring several resources that can help reporting companies and their counsel understand Regulation FD, implement Regulation FD policies and prepare compliance training for company personnel. These resources include our: