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Mitigating Damage When Material Information is Disclosed

A company official can get in trouble with the Securities and Exchange Commission (SEC) for disclosing material information via Twitter [See "Disclosure Dilemmas"]. But good old-fashioned email can be the vehicle for a violation as well. However, a recent case shows that a company prepared to act quickly can mitigate its risk.

In September, 2009, the SEC settled a case against Christopher Black, former CFO of American Commercial Lines (ACL), who had sent an email from his home concerning an earnings guidance update to eight sell-side analysts who covered the company.

ACL filed a Form 8-K on the same day it discovered the CFO's e-mail and self-reported the selective disclosure to the SEC staff the next day in conformance with the public disclosure requirements of Regulation Fair Disclosure (Reg FD).

As a result, the SEC did not take action against the company - the first Reg FD case where that has happened, according to Amy Freed, a partner at Hogan & Hartson, which represented ACL.

"The company cultivated a culture of compliance and had policies in place to prevent violations, including clearly delineated authorized spokespersons for corporate communications and required pre-review," Freed says.

Hogan & Hartson partner Daniel Shea says the company's response is evidence of a "living, breathing policy without which it may have faced liability."

The SEC stated in its settlement release in SEC v. Black that the company provided "extraordinary cooperation with the staff's investigation." Black agreed to pay a $25,000 fine.

Michael Kozubek

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