Siebel Claims SEC Rule Violates Free Speech

Siebel Systems Inc., the first company fined for failing to give market-moving information to all investors, called regulators’ interpretation of U.S. law for creating Regulation Fair Disclosure “unauthorized and tortured.”

The claim was made by San Mateo, Calif.-based Siebel in an argument to defend its motion to throw out a second improper-disclosure lawsuit by the Securities and Exchange Commission. The rule restricts free-speech rights, Siebel said. The SEC has said the regulation is constitutional.

“It is simply untenable to suggest that Regulation [Fair Disclosure] restricts only ‘commercial speech,’ ” according to Siebel’s brief filed Friday in U.S. District Court for the Southern District of New York. “The regulation extends far beyond the realm of advertising to speech conveying any material nonpublic information and abridges that speech regardless [of] whether the speaker is motivated by commercial interests.”

Siebel, the largest maker of customer-service software, has been the target of two of the six Regulation Fair Disclosure lawsuits filed by the SEC since the rule took effect in 2000.

Siebel paid a $250,000 fine in November 2002 for violating the rule at an invitation-only conference sponsored by Goldman Sachs Group Inc. in 2001.

The SEC’s latest lawsuit, filed in June, stems from optimistic comments about Siebel’s business made by Chief Financial Officer Kenneth Goldman and investor relations head Mark Hanson to institutional investors in April 2003. The SEC argues that the comments were material information that contradicted previous disclosures; Siebel says they were vague “puffery.”

Siebel is the first company to argue that the regulation violates free speech.

“The SEC’s rulemaking authority in this area is quite broad, and as such I think it will be difficult to convince a court that the SEC did not have authority to adopt this regulation,” said Brian Lane, a partner at Gibson Dunn & Crutcher.