Twenty months ago, we expressed our hope that the SEC would put its then-new Regulation Fair Disclosure to the test when defense contractor Raytheon's (NYSE: RTN) CFO Franklyn Caine spent some back- channel time with sell-side analysts after a meeting that had been broadcast over the Internet. Now, a long, long time after the fact, the SEC has finally taken action, announcing today that it had instituted a settled enforcement action against Mr. Caine and Raytheon.

The broadcast meeting in 2001 was fairly upbeat with affirmations of annual earnings-per-share guidance. Then, in one-on-one meetings, Mr. Caine discussed the upcoming quarter, telling them that their models were "too aggressive." No quarterly guidance was given during the broadcast meeting, which means that Caine had squarely fallen on the wrong side of Reg FD. In one case, he spoke with an analyst's assistant since the analyst was out of town. A week later, when the analyst had not changed his earnings forecast, Caine sent an email reinforcing the earlier statement, saying that the analyst's estimates were still out of whack. Big no-no under Reg FD, since neither he nor Raytheon had publicly discussed the quarter.

So, what was the big censure of Raytheon? Financial pain? Loss of draft picks? Well, not quite. Both Caine and Raytheon received "cease and desist" demands from the SEC. Way to take a pound of flesh from a company that showed significant ongoing disregard toward its minority shareholders, guys. I'm sure companies all around are scared stiff of Reg FD now. Better still, the Raytheon case wasn't the only one disposed by the SEC today -- they threw cease-and-desist rulings on Siebel Systems(Nasdaq: SEBL) and Secure Computing(Nasdaq: SCUR). The SEC also socked Siebel with a $250,000 fine, about the same amount the company probably pays for someone to take care of its plants. Besides that, no scarlet letter, no nothing.

So, there you have it. We have our Reg FD "test case," and it's a horror show for individual investors. Do you think that the SEC at least made Mr. Caine cry? Grumble, grumble.

Earlier this month, Tom Jacobs (TMF Tom9) released an open letter to President Bush and Congress as they seek to fill the chairman positions at the SEC and at the Public Company Accounting Oversight Board. While we do not think that there should be blood in the streets every time a company breaks a small rule of procedure, we'd suggest that such painless consequences for breaching Reg FD do nothing to restore public faith in the markets or in the current administration's commitment to ensure that we have a level playing field.

When a company breaks its statutory requirement in the programmatic fashion that Raytheon did, the consequences ought to hurt. We at the Fool are not naive enough to think that the government can regulate ethics, but we also know that a strong disincentive and financial pain would go a long way toward making rogue executives think twice before they whisper to chosen analysts at the expense of the remainder of their shareholders.

So, we're happy that the SEC has done something; we're just not sure what it was that they did.

Fool on!
Bill Mann, TMFOtter on the Fool Discussion Boards