The Securities and Exchange Commission's enforcement chief said the agency will police its new selective disclosure rule by pursuing cases against companies that use code to communicate earnings news to select analysts.
`The enforcement division is not a toothless tiger,'' SEC
Enforcement Director Richard H. Walker warned in a speech to a Securities Industries Association group.
Walker, in outlining the types of conduct that would likely draw SEC attention, also said the agency would prosecute cases in which companies repeatedly make forbidden disclosures --accidental or not -- to analysts.
Walker said the SEC would look for cases in which companies are "providing a wink or nod, or a coded response calculated to convey indirectly information that cannot be disclosed directly.''
The agency also will pursue cases in which there is ``a pattern of `non-intentional' violations (which) surely will raise questions as to whether these were truly innocent slips,'' he said.
The SEC mostly will apply the rule, which went into effect Oct. 23, to public companies, Walker said. It could, though, hold securities analysts and investment bankers accountable for selective disclosures of information in certain circumstances, the enforcement chief added.
The rule, known as FD for fair disclosure, forbids companies from revealing market-sensitive information -- about earnings, mergers, new products and the like -- to analysts and institutional investors before announcing it to the public.
The rule seeks to prohibit private meetings, conference calls and one-on-one meetings in which companies give information to favoured analysts that they then can use to brief their clients.
Broad Release
Companies must release important news under the new standard via press release, Internet broadcasts or regulatory filings.
Those that make inadvertent disclosures to analysts would have 24 hours to release the information to the public.
The SEC enforcement chief cautioned analysts about using their leverage with a company ``to coerce information'' from it.
``It is okay to be persistent and dogged,'' Walker said. ``It is not okay to be abusive and threatening.''
A corporate critic of the rule said he expects few SEC cases to be brought.
`No company wants to be a test case, so they're being meticulous about complying with the law,'' said Louis Thompson,president of the National Investor Relations Institute, a corporate trade group. ``At the same time, this is such a high-profile issue that the SEC can't afford to take a case that's marginal.''
NIRI, as well as the Securities Industry Association, a brokerage trade group, had opposed the rule, arguing it would chill the flow of information from companies to analysts and, ultimately, the public.
Walker, while detailing for the first time the types of cases that would draw SEC attention, also tried to assure companies that investigators would not use the rule as ``a trap for the unwary.''
``I hope to convince you today there is no need for fear or hysteria, and you should not let the securities bar convince you otherwise,'' the SEC enforcement director said.
Some defence lawyers have warned that the SEC might be overzealous in enforcing the standard.
Under the rule, companies can't be charged with fraud, nor can they be sued by investors. |
