SEC Chief Urges Investors to Avoid Hype
By Deena Beasley Feb 12 7:32pm ET
LOS ANGELES (Reuters) - U.S. investors, lulled into a false
sense of security by hefty returns, need to do more to manage
investment portfolio risk, Securities and Exchange Commission
(SEC) Chairman Arthur Levitt said on Saturday.
''The attitude now is 'Who wants to be a millionaire?' But
unfortunately in the stock market, you don't get any lifelines,''
Levitt said, referring to the popular TV game show.
In remarks made at an investor conference here, the SEC
chairman said warned that investors had become complacent
about risk because of years of solid and predictable returns.
''No government agency can protect you from your own
foolishness,'' Levitt told the conference.
He singled out advertisements, such as those that debuted
during last month's Superbowl, by online trading companies
touting the ease of quick riches as ''disgraceful.''
Levitt, who has been SEC chief since 1993, expressed less
concern about day traders, who he described as gamblers but
who he said account for only about 5 percent of market
volume.
He also acknowledged worry over anyone who trades on
margin accounts. ''People in America think they are richer than
they really are. A lot of it is paper profits,'' the SEC chairman
said.
Although the Federal Reserve has ultimate authority over
margin requirements, Levitt said we can expect the New York
Stock Exchange and Nasdaq to soon issue notices to
brokerage firms encouraging them ''to be mindful of margins.''
''Prosperity is not a reason to let your guard down,'' Levitt
said. ''History shows that heightened speculation has always
accompanied innovation and technological advancement.''
He warned investors to be particularly wary of ways
companies and their investment banks may act to alter the
perception of a stock's value, such as stock splits and or even
initial public offerings.
''When a $100 stock splits into two $50 shares, it may look
cheaper to some investors, but the company's underlying value
is the same,'' Levitt said.
The value of an IPO can also be hard to determine, since the
number of shares actually sold to the public generally account
for a fraction of the company's total stock, the SEC chairman
also said.
''The underwriters, venture capitalists and other insiders are
sure to make big profits on their stake,'' the SEC chairman
said. ''Many of these companies are being groomed to go
public as soon as possible. Some of them need quick
injections of capital just to survive.''
But Levitt said he remained in favor of more public access,
particularly media access, to company information, such as
IPO road shows and conference calls with Wall Street
analysts, that is now often limited to insiders.
''I am all for the broadest dissemination possible, as long as it
can be done without disruption,'' Levitt said.
Late last year, the SEC issued for comment guidelines on
selective disclosure that would require a public company to
immediately publicize any material made available to a select
group or to open up meeting and analysts' calls to the public. |
