World Surveillance Group Inc (fka WSGI)

[siriuslyricher]

Cole, now you're just being plain silly. Of course not, but our discussion concerned what constituted "insider" or "material" information. And, based on the accepted definition of materiality, I suggested to you that relating the design goal to reach a certain altitude in one generation of a prototype unmanned aerial vehicle similiar to a later generation model of that airship would not be considered a material fact, but that the actual testing and/or achievment of that goal would be.

http://www.niri.org/regulations/ExecAlerts/EA091001.cfm

Materiality

Materiality raises some of the most difficult and debated issues. Materiality decisions are the lynchpin for enforcing Reg. FD. The rule clearly points out that selective disclosure occurs when an issuer official, covered by the rule, intentionally communicates material, nonpublic information to an analyst, professional investor or anyone else who might trade on the information.

SEC officials have repeatedly said they are not about to "second guess" materiality decisions when made on the spur of the moment in such settings as conference calls or other meetings with analysts or professional investors. And, as discussed before, should an inadvertent disclosure of material, nonpublic information occur in a closed forum, the company must release that information within 24 hours or before the next trading day.

There are five key elements that the Commission must prove in a Reg. FD enforcement action: (1) Was the person who selectively disclosed the information covered by the rule? (2) Was the information clearly material? (3) Did the issuer official know it was material or was reckless in not knowing? (4) Did the issuer official intentionally disclose the information, and (5) Was the information disclosed in a nonpublic setting such as a phone call, one-on-one meeting or a group meeting that was not made fully accessible to the public.

The U.S. Supreme Court in TSC Industries, Inc. v. Northway, Inc. found that a fact is material if "there is a substantial likelihood that a reasonable shareholder should consider it important" in making an investment decision, or if the fact would have "significantly altered the 'total mix' of information made available." So, what is a reasonable investor? Reg. FD, draws a distinction between the "reasonable investor" and the "sophisticated" analyst or professional investor who, using the mosaic, collects information from various sources and through detailed knowledge of the industry and the company and through his/her insight draws a material conclusion from the mosaic.

Specifically, Reg. FD says, "Similarly, since materiality is an objective test keyed to the reasonable investor, Regulation FD will not be implicated where an issuer discloses immaterial information whose significance is discerned by the analyst."

The 1976 Bausch & Lomb, Inc. decision, 420 F. Supp. 1226 (S.D.N.Y.) states that corporate officers and analysts may engage in a "general discussion out of which a skilled analyst could extract pieces of a jigsaw puzzle (the mosaic) which would not be significant to the ordinary investor but which the analyst could add to his own fund of knowledge and use toward constructing his ultimate judgment." The Reg. FD implementing release says that the "mosaic theory" is alive under the rule.

Therefore, an issuer official may selectively communicate public or nonpublic, immaterial information to an analyst that helps that analyst in his/her effort to complete a mosaic and come to a material conclusion. The rule says, "…an issuer official is not prohibited from disclosing a non-material piece of information to an analyst, even if unbeknownst to the issuer, that piece helps the analyst complete a 'mosaic' of information that, taken together, is material."