Saturday, October 18, 2008

Lehman is About to Usher in Reg ND

The controversy around Lehman is not done.

Bloomberg and others are reporting that Dick Fuld and other Lehman executives are being investigated and likely are going to trial in the Biggest Bankruptcy Ever case.

At issue is the company's insistence until near the end that they were fine, the balance sheet was fine, liquidity was fine. The government, in effect, is calling bullshit.

In 2000, the geniuses in Washington brought Reg FD to the market:

On August 15, 2000, the SEC adopted Regulation FD to address the selective disclosure of information by publicly traded companies and other issuers. Regulation FD provides that when an issuer discloses material nonpublic information to certain individuals or entities—generally, securities market professionals, such as stock analysts, or holders of the issuer's securities who may well trade on the basis of the information—the issuer must make public disclosure of that information. In this way, the new rule aims to promote the full and fair disclosure.

Reg FD eliminated the nudge, wink and the question "How's the quarter going?" that worked so well for the buy side and the sell side in the 1990's (a good decade for me). Execs of publicly traded companies could say anything they believed to be true as long as they said it to everyone at the same time.

Now Fuld and company will likely go on trial about whether he believed what he said when he said it. He's screwed. He can't prove anything. Neither can the prosecutors in my opinion but Fuld makes a good bad guy. Just look at that picture. The balance sheet was a moving target til the very end and no jury is going to understand it.

Enter 2009. Execs effectively will need to be able to prove they believe something in order to say it. Why say anything? I wouldn't.

Welcome Reg ND. No Disclosure.

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