Regulation FD Selective Disclosure: What Companies Can’t Say First

On July 27, 2023, at 5:52 p.m., a public relations firm posted on the personal X account of DraftKings’ CEO that the company continued to see “really strong growth” in states where it already operated. DraftKings had not yet reported its second-quarter results. The SEC settled charges with a $200,000 penalty. The rule behind that case is Regulation FD, and regulation FD selective disclosure is the thing it prohibits: giving material nonpublic information to a favored few before everyone else.

If you read Form 4 (our Form 4 guide covers it), Reg FD is the other half of the picture. Form 4 shows what insiders do with their own shares. Reg FD governs what the company itself says, to whom, and when. Here is how it works, three real enforcement patterns, the one lawsuit the SEC lost, and how to find these disclosures on EDGAR.

What Regulation FD Is (and Why the SEC Adopted It)

The SEC adopted Regulation FD in August 2000, in the same release that created Rules 10b5-1 and 10b5-2. The new rules took effect October 23, 2000. In plain English, an issuer that discloses material nonpublic information to certain market professionals or likely traders must also make it public. Our explainers on 10b5-1 plans and the 10b5-2 misappropriation theory cover the other two rules from that release.

Who and What Is Covered

Rule 100(b)(1) lists the recipients whose receipt of information triggers the rule. Rule 100(b)(2) lists who is outside it.

The foreign private issuer exemption comes from the adopting release, where the SEC said it had “determined to exempt foreign private issuers at this time.” Our post on foreign private issuers and Section 16 covers a different disclosure regime for the same companies.

Simultaneous vs. Prompt: The Timing Clock

Rule 100(a) sets two standards, and the dividing line is intent. Under Rule 101(a), a disclosure is intentional when the speaker knows, or is reckless in not knowing, that the information is both material and nonpublic.

“Senior official” includes any director, executive officer, or investor or public relations officer. What counts as public disclosure? Generally, furnishing or filing a Form 8-K, or another method “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” The adopting release adds that a posting on the company website would not by itself be a sufficient method.

Reading Form 8-K Item 7.01 on EDGAR

The most direct way to satisfy the rule is Item 7.01, titled “Regulation FD Disclosure.” The form says to use that item only for information the company elects to disclose through Form 8-K pursuant to Regulation FD. Three details matter for readers:

• Furnished, not filed.General Instruction B.2 says information furnished under Item 7.01 is not deemed “filed” for purposes of Section 18 of the Exchange Act, unless the company says otherwise. That is a liability distinction, not a lower standard of truth.
• The clock is Reg FD’s, not the usual four days.The form says a company furnishing a report under Item 7.01 must do so in accordance with Rule 100(a), including its deadline. The general four-business-day period applies to events in Sections 1–6 and 9.
• Item 8.01 can serve too. A company may file under Item 8.01 solely to satisfy Reg FD.

Our post on the 8-K trading gap covers the separate question of insider trades made before an event-driven 8-K is filed. Reg FD is about what the company tells selected listeners, which is a different problem.

Case Study: Netflix and the CEO’s Facebook Post

On July 3, 2012, Netflix CEO Reed Hastings wrote on his personal Facebook page: “Netflix monthly viewing exceeded 1 billion hours for the first time ever in June.” According to the SEC’s 2013 Section 21(a) report, his page had over 200,000 subscribers, including analysts, shareholders and reporters, and Netflix stock rose from $70.45 at the time of the post to $81.72 at the close of the next trading day. The report records the price move. It does not pronounce a verdict on cause.

The SEC decided not to bring an enforcement action. It used the report to say that posting material information on an individual officer’s personal social media site, without advance notice to investors, is unlikely to qualify as a broad, non-exclusionary method. Companies, it said, should alert investors in advance to the channels they plan to use.

Case Studies: TherapeuticsMD and DraftKings

Two later settled cases show enforcement in practice. In both, the company consented without admitting or denying the findings.

TherapeuticsMD. The SEC’s press release says that on June 15, 2017, a day after an FDA meeting, the company messaged analysts that the meeting was “very positive and productive.” The stock closed up 19.4% the next day on heavy volume, with no public disclosure. On July 17, 2017, after issuing a press release, the company gave analysts undisclosed details; the stock fell about 16% pre-market and closed down 6.6% after analysts published them. The SEC’s order finds that the company violated Section 13(a) and Regulation FD, and states that in June and July 2017 it had no policies or procedures for Reg FD compliance. It later adopted them and now requires training.

DraftKings.The posts were removed shortly after at the company’s request, and the information became public seven days later with the second-quarter earnings announcement. DraftKings agreed to the $200,000 penalty and to provide Reg FD training to employees with corporate communications duties. A Covington analysis summarizes the SEC’s position this way: the personal accounts had not been identified as investor communication channels, and the company did not promptly disclose the information through a press release or Form 8-K.

The Siebel Setback and What the Research Found

The SEC has lost at least one Reg FD fight in court. It sued Siebel Systems and two officers in July 2004, alleging the CFO and investor relations director disclosed sales pipeline information in private meetings. In 2005 the Southern District of New York granted summary judgment for the defendants, in what TheCorporateCounsel.net describes as the first federal court decision interpreting the rule. The judge questioned whether the CFO’s statements were material or nonpublic, and criticized the SEC for parsing words: such an approach, he wrote, “places an unreasonable burden on a company’s management and spokespersons to become linguistic experts.” He limited the conclusion to the facts of the case.

Researchers have asked what happened next. A paper by Ali, Fisch, Kyung and Durney (Contemporary Accounting Research, 2023) finds that selective disclosure from managers to analysts “increased significantly” after the decision, covering both material information, in violation of Reg FD, and non-material information, which stays within the rule. Their interviews with law firm partners lead them to conclude that anticipated enforcement costs shape private information flow.

A second study, summarized on the Harvard Law School Forum, reports that the SEC brought six Reg FD actions before Siebel, all settled with minor penalties, and none after until 2007. It also found significant abnormal selling by transient institutions before major earnings declines in 1995–1999, none in 2001–2004, and significant selling again from 2005Q4 to 2009. The effect appeared only for closed-call firms, firms attending investor conferences, and transient institutions with large stakes. These are statistical patterns, not evidence about any particular company.

What Reg FD Does Not Do: Limits and Misconceptions

• The mosaic is allowed.The SEC said an issuer may disclose immaterial pieces even if they help an analyst complete a “mosaic.” What matters is whether the company discloses material nonpublic information.
• No event is automatically material.The release lists earnings, M&A, management or auditor changes and bankruptcy as types needing careful review, without calling any of them automatically material.
• It regulates the company, not the insider. A director selling shares is a Section 16 matter. See our insider trading explainer and our short-swing profit rule guide for the trading side.

A Reader’s Checklist for Your Own Research

1. Find the designated channels.Check the company’s investor relations page and annual report for which channels it says it uses for material information, including any social media accounts.
2. Search Item 7.01.On EDGAR, filter a company’s 8-Ks and open those listing Item 7.01. Note whether text was furnished or filed.
3. Compare dates. Put press release and 8-K dates next to Form 4 transaction dates. That shows sequence only, not intent.
4. Read the exclusions. A conversation with a lawyer, banker or a party under an express confidentiality agreement falls outside the rule.

This is education about how a disclosure rule works. It is not investment advice, and nothing here predicts how any stock will move.