On Aug. 20, 2019, the Securities and Exchange Commission (SEC) announced that it had charged public pharmaceutical company TherapeuticsMD, Inc. for violations of Regulation FD and Section 13(a) of the Exchange Act related to TherapeuticsMD's 2017 disclosures of material nonpublic information to research analysts that was not simultaneously or promptly disclosed publicly. The SEC issued a cease-and-desist order against TherapeuticsMD and imposed a $200,000 civil penalty. TherapeuticsMD agreed to pay the fine without admitting or denying the SEC's findings.
Regulation FD requires that material nonpublic disclosures to securities market professionals by a public company must be simultaneously or promptly disclosed through an Exchange Act filing or through another means that is a recognized public channel of distribution.
The SEC's order found that in 2017, TherapeuticsMD had in two instances made selective disclosures of material nonpublic information to research analysts. On June 15 and 16, 2017, a TherapeuticsMD executive, via email and phone calls, disclosed to approximately six sell-side research analysts that a June 14 meeting with the Food and Drug Administration (FDA) about a drug therapy then in development went favorably. The New York Stock Exchange subsequently inquired as to whether a disclosure of material information had occurred after the stock price increased by 19.4% (simultaneously with heavy trading volume) by the market close on June 16. TherapeuticsMD did not make any disclosures about the June 14 meeting until it filed a Form 8-K and press release on July 17.
The second instance of disclosure occurred during another call with analysts on July 17 in response to the 8-K and press release filed earlier that day regarding the June 14 meeting and information submitted to the FDA to address its concerns. After inquiries from analysts about the 8-K and press release, TherapeuticsMD executives discussed undisclosed details of and made reassuring comments regarding the FDA meeting and information submitted. The analysts subsequently published notes about the call, following which the stock recovered some of the losses (the stock price had decreased by 16% on the morning of July 17) it had sustained after the filing of the 8-K and press release, so that by market close the stock price had only decreased by 6.6%. TherapeuticsMD did not disclose to the public the information it had provided to the analysts on July 17 until its earnings call on Aug. 3.
The SEC noted that, at the time of the disclosures to the analysts in violation of Regulation FD, TherapeuticsMD did not have policies or procedures in place or conduct training with respect to compliance with Regulation FD.
The full text of the SEC's press release announcing its charges against TherapeuticsMD can be found here, and the full text of the SEC's cease-and-desist order can be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
