SEC Files Settled Regulation FD Charges Against Flowserve Corporation, Its Chief Executive Officer, and Director of Investor Relations
Flowserve Corporation, its CEO C. Scott Greer, and Director of Investor Relations Michael Conley violated Regulation FD by privately reaffirming material earnings guidance to analysts on November 19, 2002, without public disclosure until the next day, resulting in a 6% stock price increase and leading to a $350,000 penalty for Flowserve, a $50,000 penalty for Greer, and cease-and-desist orders for all three.
Flowserve Corporation, CEO C. Scott Greer, and Director of Investor Relations Michael Conley were charged by the SEC with violating Regulation FD and Section 13(a) of the Securities Exchange Act for selectively reaffirming the company’s 2002 earnings guidance of $1.45–$1.55 per share during a private meeting with analysts on November 19, 2002. The reaffirmation, which contradicted the company’s internal policy and was not publicly disclosed until a Form 8-K filed the next day, caused Flowserve’s stock price to rise 6% and trading volume to surge 75%. Flowserve agreed to pay a $350,000 civil penalty, Greer paid $50,000, and all parties consented to cease-and-desist orders without admitting or denying the allegations, marking the first SEC enforcement action of its kind against an investor relations director and for earnings reaffirmation.
Flowserve Corporation, its CEO C. Scott Greer, and Director of Investor Relations Michael Conley violated Regulation FD by privately reaffirming the company’s 2002 earnings guidance of $1.45–$1.55 per share during a meeting with analysts on November 19, 2002, despite having previously disclosed that guidance publicly on October 22 and having a policy against updating guidance without public notice. Greer, with Conley’s silence and failure to intervene, provided material nonpublic information that was not disseminated to the public until a Form 8-K was filed on November 21, triggering a 6% increase in Flowserve’s stock price and a 75% spike in trading volume. The SEC determined this was the first enforcement action involving a reaffirmation of earnings guidance and the first against an investor relations director under Regulation FD. Flowserve agreed to pay a $350,000 civil penalty, Greer paid $50,000, and all three consented to cease-and-desist orders without admitting or denying the allegations. The SEC also cited the respondents’ lack of cooperation as an aggravating factor, noting they initially denied the reaffirmation occurred despite clear evidence. The case underscored the SEC’s stance that issuers cannot selectively disclose material information to market professionals without immediate public dissemination. This enforcement action set a precedent for accountability in investor relations practices and reinforced the core principle of Regulation FD: fair and equal access to material information.
Exhibits & Attached Documents (1)
Extracted insights
- $350K $350,000 $100K–$1M
- $50K $50,000 $10K–$100K
- person c. scott greer
- company flowserve corporation
- person michael conley
- person regulation fd
- agency Securities and Exchange Commission
- Sec charged Flowserve Corporation
- Sec charged C. Scott Greer
- Sec charged Michael Conley
- Flowserve Corporation agreed to pay $350,000 penalty
- subject agreed to pay $50,000 penalty
- Flowserve Corporation violated Regulation FD
- C. Scott Greer reaffirmed previous public guidance
- Flowserve Corporation filed Form 10-Q
- Flowserve Corporation furnished Form 8-K
SEC FILES SETTLED REGULATION FD CHARGES AGAINST FLOWSERVE CORPORATION, ITS CHIEF EXECUTIVE OFFICER, AND DIRECTOR OF INVESTOR RELATIONS FOR IMMEDIATE RELEASE 2005-41 FLOWSERVE AGREES TO PAY $350,000 PENALTY CHIEF EXECUTIVE AGREES TO PAY $50,000 PENALTY Washington, DC, March 24, 2005--The Commission today charged Flowserve Corporation, a manufacturer of precision-engineered flow control equipment headquartered in Irving, Texas, with violating Regulation FD and Section 13(a) of the Securities Exchange Act of 1934. Regulation FD prohibits issuers from selectively disclosing material nonpublic information to certain persons -- securities analysts, broker-dealers, investment advisers and institutional investors -- before disclosing the same information to the public. The SEC also charged its Chief Executive Officer, C. Scott Greer, and Director of Investor Relations, Michael Conley, with causing Flowserve�s violations. The Commission issued an Order that found Flowserve violated Regulation FD when, in a private meeting with analysts near the end of a reporting period, the company reaffirmed its previous earnings guidance. Without admitting or denying the Commission�s allegations and findings, Flowserve and Greer consented to the entry of a final judgment by the federal court that would require them to pay civil penalties of $350,000 and $50,000 respectively. Flowserve, Greer and Conley also consented to the Commission�s issuance of a cease-and-desist order. This is the first Regulation FD case filed by the Commission involving a reaffirmation of earnings by an issuer and the first settled enforcement action against a Director of Investor Relations for violating this rule. �Issuers cannot pick and choose the recipients of material information,� said Paul R. Berger, Associate Director of the SEC�s Division of Enforcement. �If issuers disclose material information to market professionals, then Regulation FD requires that they disseminate the same information to the marketplace.� In its Order, the Commission found that, Flowserve, a calendar-year reporting corporation, began 2002 forecasting annual earnings per share in the range of $1.90 to $2.30. In July of that year, the Company revised that estimate to $1.70 to $1.90 per share. On Sept. 27, the Company lowered its earnings estimate to $1.45 to $1.55 per share, which the Company reaffirmed in its Form 10-Q filed on Oct. 22, 2002. The $1.45 to $1.55 range represented more than a 30% decline in earnings per share estimates since the beginning of the year. On Nov. 19, 2002, forty-two days before the end of Flowserve�s fiscal year, Greer, along with Conley, met privately in Irving, Texas with analysts. At that meeting, one of the analysts asked about the Company�s earnings guidance for the year. Neither Conley nor Greer gave the response required by the Company�s policy, i.e., that earnings guidance was effective at the date given and would not be updated until the Company publicly announced updated guidance. Conley did not caution Greer before Greer answered the analyst�s questions. In fact, Conley remained altogether silent. Instead, in response to the question, Greer reaffirmed the previous public guidance, which had been issued on Oct. 22, 2002, and thus provided additional material nonpublic information. On Nov. 20, 2002, an analyst who attended the meeting issued a report stating that Flowserve had reaffirmed its earnings guidance. The next day, on Nov. 21, Flowserve�s closing stock price was approximately 6% higher than the closing price the day before. In addition, the trading volume of Flowserve�s stock increased by 75%, from 379,500 shares traded on Nov. 20 to 658,300 shares traded on Nov. 21. After the market closed on Nov. 21, Flowserve furnished a Form 8-K to the Commission acknowledging that it had �reaffirmed its full year 2002 estimated earnings per share.� In addition to the underlying conduct, the Commission considered the Respondents� lack of cooperation afforded the Commission staff. Specifically, and inconsistent with the Form 8-K furnished by the Company, both Greer and Conley denied that a reaffirmation occurred at the private meeting with the analysts. For further information contact: Paul R. Berger, Associate Director, Division of Enforcement -- (202) 942-4854. Richard W. Grime, Assistant Director, Division of Enforcement -- (202) 942-4863. Additional Materials: Administrative Proceeding Litigation Release http://www.sec.gov/news/press/2005-41.htm Home | Previous Page Modified: 03/24/2005
SEC FILES SETTLED REGULATION FD CHARGES AGAINST FLOWSERVE CORPORATION, ITS CHIEF EXECUTIVE OFFICER, AND DIRECTOR OF INVESTOR RELATIONS FOR IMMEDIATE RELEASE 2005-41 FLOWSERVE AGREES TO PAY $350,000 PENALTY CHIEF EXECUTIVE AGREES TO PAY $50,000 PENALTY Washington, DC, March 24, 2005--The Commission today charged Flowserve Corporation, a manufacturer of precision-engineered flow control equipment headquartered in Irving, Texas, with violating Regulation FD and Section 13(a) of the Securities Exchange Act of 1934. Regulation FD prohibits issuers from selectively disclosing material nonpublic information to certain persons -- securities analysts, broker-dealers, investment advisers and institutional investors -- before disclosing the same information to the public. The SEC also charged its Chief Executive Officer, C. Scott Greer, and Director of Investor Relations, Michael Conley, with causing Flowserve�s violations. The Commission issued an Order that found Flowserve violated Regulation FD when, in a private meeting with analysts near the end of a reporting period, the company reaffirmed its previous earnings guidance. Without admitting or denying the Commission�s allegations and findings, Flowserve and Greer consented to the entry of a final judgment by the federal court that would require them to pay civil penalties of $350,000 and $50,000 respectively. Flowserve, Greer and Conley also consented to the Commission�s issuance of a cease-and-desist order. This is the first Regulation FD case filed by the Commission involving a reaffirmation of earnings by an issuer and the first settled enforcement action against a Director of Investor Relations for violating this rule. �Issuers cannot pick and choose the recipients of material information,� said Paul R. Berger, Associate Director of the SEC�s Division of Enforcement. �If issuers disclose material information to market professionals, then Regulation FD requires that they disseminate the same information to the marketplace.� In its Order, the Commission found that, Flowserve, a calendar-year reporting corporation, began 2002 forecasting annual earnings per share in the range of $1.90 to $2.30. In July of that year, the Company revised that estimate to $1.70 to $1.90 per share. On Sept. 27, the Company lowered its earnings estimate to $1.45 to $1.55 per share, which the Company reaffirmed in its Form 10-Q filed on Oct. 22, 2002. The $1.45 to $1.55 range represented more than a 30% decline in earnings per share estimates since the beginning of the year. On Nov. 19, 2002, forty-two days before the end of Flowserve�s fiscal year, Greer, along with Conley, met privately in Irving, Texas with analysts. At that meeting, one of the analysts asked about the Company�s earnings guidance for the year. Neither Conley nor Greer gave the response required by the Company�s policy, i.e., that earnings guidance was effective at the date given and would not be updated until the Company publicly announced updated guidance. Conley did not caution Greer before Greer answered the analyst�s questions. In fact, Conley remained altogether silent. Instead, in response to the question, Greer reaffirmed the previous public guidance, which had been issued on Oct. 22, 2002, and thus provided additional material nonpublic information. On Nov. 20, 2002, an analyst who attended the meeting issued a report stating that Flowserve had reaffirmed its earnings guidance. The next day, on Nov. 21, Flowserve�s closing stock price was approximately 6% higher than the closing price the day before. In addition, the trading volume of Flowserve�s stock increased by 75%, from 379,500 shares traded on Nov. 20 to 658,300 shares traded on Nov. 21. After the market closed on Nov. 21, Flowserve furnished a Form 8-K to the Commission acknowledging that it had �reaffirmed its full year 2002 estimated earnings per share.� In addition to the underlying conduct, the Commission considered the Respondents� lack of cooperation afforded the Commission staff. Specifically, and inconsistent with the Form 8-K furnished by the Company, both Greer and Conley denied that a reaffirmation occurred at the private meeting with the analysts. For further information contact: Paul R. Berger, Associate Director, Division of Enforcement -- (202) 942-4854. Richard W. Grime, Assistant Director, Division of Enforcement -- (202) 942-4863. Additional Materials: Administrative Proceeding Litigation Release http://www.sec.gov/news/press/2005-41.htm Home | Previous Page Modified: 03/24/2005