SEC Enforcement Action against Flowserve Corporation

A recent SEC enforcement action against Flowserve Corporation under Regulation FD is instructive about precautions public companies should take in updating or confirming earnings guidance in a non-public forum, particularly in the second half of a fiscal quarter. On March 24, 2005, the SEC settled enforcement proceedings against the Chairman, President and Chief Executive Officer of Flowserve and the Director of Investor Relations of Flowserve for violations of Regulation FD and Section 13(a) of the Securities Exchange Act of 1934. This is the first settled action against a director of investor relations.¹

Regulation FD prohibits public companies from selectively disclosing material non-public information to certain persons, such as securities analysts, broker-dealers, investment advisers and institutional investors, before disclosing the same information to the public.