The SEC brought enforcement actions against Office Depot, Inc. and 2 execs for violating or causing violations of fair disclosure regulations when selectively conveying to analysts and institutional investors that the company would not meet analysts' earnings estimates.  Office Depot also was charged with unrelated accounting violations. 

Regulation FD requires that when issuers disclose material nonpublic information, they must make broad public disclosure of that information.

SEC Findings and Fines.   Near the end of Q2 for 2007, Office Depot CEO Stephen Odland and then-CFO Patricia McKay decided to ramp up interest among analysts by holding a series of one-on-one calls to analysts.  They're intent:  to get analysts to lower their earnings estimates.  While not directly stating that it wouldn't meet analysts' expectations, the message was expressed as references to recent public statements of comparable companies about the impact of the slowing economy on their earnings.  Analysts also were reminded of Office Depot's prior cautionary public statements.  Analysts promptly lowered their estimates for the period in response to the calls.

In doing so, they did not contact and hold one-on-ones with all analysts who covered the company were contacted.  "Regulation FD is designed to level the playing field so that all investors receive the information at the same time."  To settle SEC charges, Office Depot agreed to pay a $1 million penalty, while Odland and McKay will pay $50,000 each.

"Office Depot executives selectively shared information with analysts and the company's largest shareholders in order to manage earnings expectations.  -- Robert Khuzami; SEC Enforcement Director.

"Talking Wall Street down from its earnings projections whether done expressly or through signals is prohibited."  -- Eric Bustillo, SEC Miami Regional Director.

Mr. Odland allegedly proposed the strategy to Ms. McKay, and further suggested that Office Depot point out on its calls what the company had said in prior public conference calls in April and May 2007.  Ms. McKay then assisted the firm's IR personnel in preparing talking points for the calls.  While Odland and McKay were not present during the calls, they were aware of the analysts' declining estimates while the company made the calls, and encouraged the calls to be completed. 

Some analysts expressed concerns to McKay about the lack of public disclosure, among other things, and 6 days after the calls began, Office Depot filed a Form 8-K announcing that its sales and earnings would be negatively impacted due to a continued soft economy. 

[C-I Note:  And, in such cases, should analysts be advised not to make use of such "selected disclosures?"  That is, once they recognized a potential Reg FD violation, did they themselves violate the rule by acting on the information?  In the real world, the analysts will incorporate the information into their analyses and investment ratings - and, why not - others were doing it!]   [SEC PR 10-202, 10/21]