PETE, This ones for you <G>: SEC Proposes Pro Forma Rules
Wednesday October 30, 3:20 pm ET
By Kevin Drawbaugh
WASHINGTON (Reuters) - U.S. securities regulators, moving fast on new regulations ordered by
Congress after a wave of business scandals, on Wednesday proposed rules to crack down on "pro
forma" profit reports and off-balance sheet dealings.
The Securities and Exchange
Commission, voting 5-0 on all measures,
also sent out for public comment a
proposed rule to bar executives from
selling company stock when employees
are unable to do so because of pension
plan "blackout periods."
The SEC has postponed until Nov. 6
action on a proposed rule to require
corporate lawyers to blow the whistle on
securities law-breaking found on the job.
SEC Chairman Harvey Pitt said the SEC
staff needed more time to write the rule,
which had been scheduled for
consideration on Oct. 31.
The SEC is working hard to implement
provisions of the Sarbanes-Oxley Act
approved in July by Congress in reaction to corporate and accounting scandals that began last fall
with energy trader Enron Corp. (Other OTC:ENRNQ.PK - News) and continued with long-distance
and Internet traffic carrier WorldCom Inc. (Other OTC:WCOEQ.PK - News).
The pro forma reporting rule attacks the problem of companies reporting profit figures that ignore
various costs, departing from nationally recognized standards known as the Generally Accepted
Accounting Principles, or GAAP.
Pro forma reporting became common in the late 1990s, especially among high-flying technology and
telecommunications companies striving to burnish their bottom lines.
Under the proposed rule, companies could no longer report financial results on a pro forma basis
without explaining how they differed from GAAP-based results. In addition, pro forma results could
not be misleading or be in error, the SEC said.
The pro forma rule would also result in companies having to file press releases and
announcements that contain "material" financial information to the SEC on the existing 8K form,
exposing companies to greater legal liability on their public pronouncements.
"This fills the gap between GAAP and non-GAAP," said SEC Commissioner Paul Atkins.
Non-U.S. companies traded in the United States would be allowed limited exceptions to the pro
forma rule, the SEC said.
As it continued to process a raft of rule-making requirements called for under Sarbanes-Oxley, which
was co-authored by Maryland Democratic Sen. Paul Sarbanes and Ohio Republican Rep. Michael
Oxley, the SEC also moved along a measure to require corporations to disclose more information
about off-balance-sheet dealings.
Investigators have alleged that officers of bankrupt Enron -- once the seventh-largest U.S. firm -- used
off-balance-sheet ventures to hide debt, pad profits and enrich themselves.
The collapse of Houston-based Enron destroyed billions of dollars in investor equity and thousands
of jobs, ushering in a stubborn crisis of confidence among U.S. investors.
The off-balance-sheet rule would require companies to talk about any off-balance-sheet
arrangements and the risks that they could pose in the "Management's Discussion and Analysis"
section of filings made to the commission.
Another rule originating from the Enron affair -- one on pension fund blackouts -- won preliminary
SEC approval. Like the other measures, it will be out for public comment for several weeks, with final
adoption expected in a few months.
The rule would bar corporate executives from selling company stock during periods known as
blackouts, when employees in company pension funds may not sell their shares. Enron executives
allegedly unloaded thousands of shares during such a period that paralyzed Enron employees who
could not sell. |
