Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Saturday, July 14, 2007

SEC Opens Inquiry into Whole Foods CEO's Postings

It is reported that the SEC has opened an investigation into Whole Foods CEO John Mackay's online postings.  WSJ, SEC Opens Informal Inquiry Of Whole Foods CEO Postings.  Would any of them constitute "material misstatements" for purposes of Rule 10b-5? While many of them are opinions (he likes the new Whole Foods salad dressing), statements of obvious facts (Whole Foods is not WalMart's), or just stupid or silly (his views on politics, equal opportunity, his haircut) a few do involve very specific predictions of future performance (will hit $10 million sales target by end of decade) which could be actionable if found to be false and misleading.

What if these statements differ materially from official public statements from the company?  Several news accounts have speculated that there could be a Regulation FD violation here.  Regulation FD prohibits selective disclosure of corporate information by senior corporate officers.  It was enacted to deal with management's disclosures to favored analysts ahead of the market.  The rule is quite specific in its application and identifies the recipients of the information -- brokers and dealers, investment advisers, investment companies, or someone who is a "holder of the issuer's securities, under circumstances in which it is reasonably foreseeable that the person will purchase or sell the issuer's securities on the basis of the information."  Would the latter cover readers of the bulletin board on which these messages were posted?  The few judicial interpretations of Regulation FD have not embraced an aggressive interpretation of the rule. 

I agree with others who have said the serious issue here goes to the quality of Mackey's judgment and whether he has the appropriate temperament to manage a public corporation.  It has been reported that the postings stopped sometime last year; does this mean that Mackey came to realize how inappropriate these postings were?  In any event, I hope the board of directors of Whole Foods is spending some substantial time in reviewing this situation and assessing Mackey's leadership abilities.

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