Did the Siebel Systems Case Limit the SEC’s Ability to Enforce Regulation Fair Disclosure?

We examine whether a shock to the enforceability of Regulation Fair Disclosure (Reg FD) limited its ability to restrict the flow of private information between managers and investors. Prior work provides evidence that Reg FD reduced managers' selective disclosure of material information immediately following its promulgation. We test whether the initial effects of Reg FD on selective disclosure have diminished due to the SEC's challenges in enforcing Reg FD. Specifically, we predict and find evidence that the SEC's failed litigation attempt in SEC v. Siebel Systems, Inc. contributed to a return of informed trading by transient institutional investors, consistent with managers altering their selective disclosure practices following the SEC's enforcement failure. We also find that Siebel led to an unleveling effect among sophisticated investors with respect to private information advantages. Our results suggest that researchers should exercise caution in assuming a homogenous information environment post-Reg FD, and our study highlights the importance of enforcement in achieving intended regulatory outcomes