That pesky regulation known as Regulation Fair Disclosure has ensnared yet another high-profile CEO. This time, it is Apple’s Tim Cook who could come under scrutiny by the Securities and Exchange Commission for over-sharing company information.
Reg FD is a 2009 rule requiring that all publicly traded companies must disclose material information to all investors at the same time. In other words, a CEO cannot play favorites and leak material financial information to a favorable analyst, favorite journalist, or invitation-only social media account.
Cook, just a few hours before watching company shares battered during Monday’s stock market sell-off, emailed CNBC host Jim Cramer to offer some reassuring perspective about sales in China. “I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August,” he wrote. “Obviously I can’t predict the future, but our performance so far this quarter is reassuring.” Cramer would later read the e-mail on-air and, shortly thereafter, Apple’s stock rallied from 10 percent down to positive territory (it would fall again later in the day).
The e-mail has since sparked a debate over whether the SEC should sic its lawyers on Cook for a Reg D violation. In the meantime, as the Commission surely debates whether it may enter the fray, the episode raises interesting questions that once again illustrate why Reg FD can be so confusing.
Cramer may not be a powerful hedge fund manager these days, but as a popular on-air personality and face behind TheStreet.com his advice can certainly move markets, as it appears to have done once Cook’s e-mail went public. So, did Cook e-mail material information to a single investor (Cramer still manages a charitable trust), or did he effectively issue a press statement that he knew would be broadly disseminated. The counter argument to that latter view: is the CNBC audience a large enough cohort to be considered broad dissemination in the absence of a formal press release, posting on Apple’s website, or SEC filing?
This isn’t the first time Cook has inspired debate over Reg FD.
In 2013, Cook agreed to a three-hour dinner with activist investor Carl Icahn, who at the time was pushing for Apple to conduct a $150 billion share buyback and acquired a large stake in the company. Was the dinner merely a “get to know you” meeting with an investor? Or, was potentially material, market-moving information—of the very sort Reg FD is intended to make available to a broader audience—discussed?
The SEC declined to pursue the Cook/Icahn confab. A year earlier, however, Netflix and CEO Reed Hastings received a Wells notice in response to subscriber information Hastings posted on Twitter. In that scrutinized post, he also praised the efforts of his content licensing team, adding, “When ‘House of Cards' and ‘Arrested Development' debut, we'll blow these [subscriber] records away. “ Ultimately, the SEC chose not to move forward with an enforcement action.