On October 21, 2010, the U.S. Securities and Exchange Commission (SEC) filed a Complaint in the Southern District of New York and simultaneously settled enforcement actions against Office Depot, Inc., its CEO, Stephen A. Odland, and its former CFO, Patricia A. McKay (collectively, the Defendants). The SEC charged the Defendants with violating Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act), and SEC Regulation FD, in 2007, for selectively communicating to analysts and institutional investors that Office Depot would not meet the analysts’ quarterly earnings estimates. The settlement is noteworthy because Office Depot did not directly inform analysts that it would not meet expectations, a classic Regulation FD violation, but signaled that fact through references to recent public statements of comparable companies and its prior cautionary public statements. This matter is of particular importance to the hedge fund community because it highlights the risks involved when hedge fund managers, analysts and traders gather information from corporate insiders in small group meetings or other private settings. For more on situations in which hedge fund managers speak to corporate management, see “How Can Hedge Fund Managers Distinguish Between Market Color and Inside Information
,” Hedge Fund Law Report, Vol. 2, No. 46 (Nov. 19, 2009). This article discusses the legal principles underlying Regulation FD, the background of the action and the settlement.