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University of Iowa News Release

April 18, 2005

Sale Defends SEC Disclosure Rules In Court Brief

University of Iowa law professor Hillary Sale has helped write a court brief that defends a Securities and Exchange Commission rule requiring full public disclosure of a company's financial information.

The friend of the court brief was filed with some of the top securities law experts in the country in support of the SEC in a lawsuit against software development company Seibel Systems. The brief argues that finding the Regulation FD (Fair Disclosure) unconstitutional would cripple the federal government's efforts to protect investors.

"The rule's intent is to ensure that average, everyday investors have the same access to a company's financial information as the Wall Street analyst and investment bankers on which to base their investment decisions," said Sale. "The law is necessary to provide an even playing field for all investors and not provide an advantage to those who invest larger amounts of money."

Regulation FD prevents a company's executives from giving financial information to such groups of people as analysts and investment bankers without making that same information available to the general public. The law also prohibits executives from giving conflicting information to different groups. The SEC alleges Seibel violated the rule in April 2003, when a company executive provided a pessimistic revenue forecast to the public, but an optimistic report in a private meeting with analysts from Morgan Stanley and Alliance Capital just a few weeks later. The company has asked a federal judge in New York to dismiss the case, claiming the rule violates its executives' First Amendment right to free speech and challenging the SEC's authority to develop such rules in the first place. The United States Chamber of Commerce has filed a legal brief supporting Seibel's request.

Sale and the law professors, however, dispute those contentions. In the brief, they argue the number of people whom they are prohibited from discussing their companies' performance with is so small that the prohibition has no practical effect of limiting their freedom of speech rights. As for the claim the SEC has no legal authority to develop regulations such as Regulation FD, the brief points to numerous federal laws and legal precedent that gives such SEC rule-making authority.

The professors argue in their brief that Seibel's claims, "if accepted, would invalidate not only a beneficial, well thought-out rule like Regulation FD, but also cast a considerable shadow over many other fundamental aspects of federal securities regulation."

Sale was on the drafting committee that wrote and submitted the brief representing 22 of the top securities law professors in the country. Among others are John Coffee of Columbia University School of Law, Howell Jackson of Harvard Law School and Joel Seligman of Washington University in St. Louis.

The case, SEC v. Seibel Systems, is currently before the U.S. District Court in the Southern District of New York in Manhattan. The judge expects to issue a ruling on the motion to dismiss later this spring.

STORY SOURCE: University of Iowa News Service, 300 Plaza Centre One, Suite 371, Iowa City, Iowa 52242-2500.

MEDIA CONTACT: Tom Snee, 319-384-0010, tom-snee@uiowa.edu.