By Judy Mathewson Siebel Systems Inc., in the first legal challenge to the government's fair disclosure rule, said allegations it gave market-moving information to selected investors should be dismissed because regulators have no enforcement authority.

Attorneys for Siebel Systems, the world's largest maker of customer-service software, were in U.S. District Court in New York on Tuesday to argue for dismissal of the accusations made by the U.S. Securities and Exchange Commission. It's the second time San Mateo-based Siebel Systems has run afoul of the Regulation Fair Disclosure that prohibits public companies from giving information to preferred investors.

"There's a serious question whether Congress authorized this regulation," said Kathleen M. Sullivan, attorney for Siebel. "The government cannot make up a policy without express delegation from Congress."

The SEC argued it has authority to enforce the rule as part of its power to require companies to update investors about important news. "We have a very wide authority," SEC lawyer Treazure Johnson told U.S. District Judge George Daniels.

Daniels questioned the limits of the SEC's authority. At first, Johnson couldn't remember any instances, but then said the agency's bounds were challenged when its efforts to impose disclosure requirements on the banking industry were rebuffed by the courts. Daniels said he would issue his decision in two to three months.


Advertisement

Siebel has been the target of two of the six Regulation Fair Disclosure lawsuits filed by the SEC since the rule took effect in 2000. Siebel, which neither denied or admitted wrongdoing, paid a $250,000 penalty in 2002 after information was given at an invitation-only conference sponsored by Goldman Sachs Group.

The company's second lawsuit, filed in June, stems from upbeat comments made to institutional investors and analysts by Chief Financial Officer Kenneth Goldman and investor relations head Mark Hanson in April 2003.

Shares of Siebel jumped 8 percent the next day after Morgan Stanley, whose analyst was present at the meeting, relayed the comments to its institutional clients, noting that "the body language was positive."