SEC to Design Rule for TV Analysts to Tell Conflicts
Washington, Dec. 7 (Bloomberg) -- The Securities and Exchange Commission is designing new rules to require television stock analysts and money managers to disclose possible conflicts of interest when they recommend securities on the air.
``Investors deserve to know what possible incentives an investment services professional may have in making a particular recommendation,'' SEC Chairman Arthur Levitt said.
Levitt said his staff will work with the New York Stock Exchange and the National Association of Securities Dealers to develop the rules ``in short order.''
The possible conflicts that concern the SEC, Levitt said, involve an analyst's personal investments in stocks he recommends as well as his firm's ownership of these stocks. Other possible conflicts involve the firm's investment-banking work for companies reviewed by the analyst, he said.
The most prominent stock analysts -- such as Goldman, Sachs & Co.'s Abby Joseph Cohen; Merrill Lynch & Co.'s Henry Blodget; Prudential Securities Inc.'s Ralph Acampora, and Morgan Stanley Dean Witter & Co.'s Mary Meeker -- have taken on celebrity status with their growing visibility on television and investor interest in the stock market.
TV Concerns
Analysts often are asked for their leading stock picks on round-the-clock financial news networks such as CNBC and CNNfn. Bloomberg Television, owned by the parent of Bloomberg News, competes with those and others in the market for televised financial news.
James Cramer, the hedge fund manager who co-founded the financial news Web site TheStreet.com Inc., has faced questions about possible conflicts involving his TV appearances and stock holdings. Earlier this week, he said he's leaving the money- management business.
``This rule would be fabulous,'' Cramer said. ``If you told me a TV movie critic was working for Warner Brothers, I wouldn't think he'd be as independent as someone who worked for the New York Times.''
A leading brokerage trade group raised preliminary questions about the developing proposal.
``Any rule they come up with has got to work for the TV format,'' said James Spellman, spokesman for the Securities Industry Association. ``We support making sure investors understand the context of the information they receive, though we'll have to see the fine print of any proposals.''
Regulatory obligations would fall on brokerages rather than news organizations, over which the SEC has no authority. The SEC's proposals will cover investment advisers, while those of the NYSE and NASD will apply to analysts employed by brokerages, SEC spokesman Chris Ullman said.
Any rule proposals face an initial SEC vote on whether to issue them for public comment before commissioners make a final decision on whether to approve them.
A public television producer objected today to any government agency asking TV networks to determine possible analyst conflicts and to require that they're disclosed.
``We're not a tool of the government,'' said Rich Dubroff, executive producer of the Public Broadcasting System's ``Wall Street Week With Louis Rukeyser.''
Neil Cavuto, anchor of the ``Your World'' business news show on News Corp.'s Fox News Channel, has said, ``The SEC, with the best of intentions, is doing something that could be very, very Big Brother-ish down the road.''
Disclosure Problems
The SEC has been privately asking financial television programs and networks such as General Electric Co.'s CNBC and Time Warner Inc.'s CNNfn for their views on how potential analyst conflicts can be disclosed on the air.
CNBC has said it routinely asks analysts to disclose investments in stocks they will recommend, though it makes no such requests about their firm's investment-banking customers.
The NASD, which owns the Nasdaq Stock Market and the American Stock Exchange, today approved a resolution expressing support for analysts' disclosure of possible conflicts during public appearances.
``It is important for investors to have confidence that a recommendation made by an analyst, or other financial services professional, is based solely on the merits of the investment and not that person's financial interest,'' NASD chief executive Robert Glauber said.
NYSE spokesman Ray Pellecchia said, ``We believe these discussions will ultimately lead to the adoption of rules that better protect investors.''
The SEC's regulatory effort steps up attempts by Levitt to use his bully pulpit to press for great disclosure by analysts.
Current disclosure obligations in U.S. securities rules are aimed at written stock recommendations by analysts, not verbal picks made on TV, the SEC's Ullman has said.
Dec/07/2000 17:57 ET
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