RE: <<Dale J., We are both in agreement on the ineptness or unwillingness of the SEC to do anything about the gross injustice to individual investors, and infractions of its own laws and regulations by big money. Nothing is going to change there.>>
Zurdo:
Agree. SEC is a paper tiger with no teeth when it comes to dealing with insider information exchanges between company management and big money brokerage houses. I wrote an editorial to a Barrons reporter. We need to get this issue elevated in the press, before SEC will look into it. If all else fails we may have to pursue legal action.
Dear Mr Savitz:
I read your March 9th article "The chips are down" in this weeks Barrons.
In the article you tangentially touched on a topic that is very important to the millions of individual on-line investors.
That is to say many individual investors believe they do not have a level playing field when it comes to information released from company management. This is in spite of a widely known SEC rule that prohibits company management from releasing material information, (information the could affect the stock price) to favored analyst and large shareholders. SEC rules state that all material information must be released to the public at the same time.
Although it is a SEC rule, SEC apparently condones this practice by virtue of not enforcing it. This practice may have been a matter of practicality in the past, but today there are millions of new investors that do their own research and have access to the latest breaking news via the internet. There is no longer any justifiable reason for a company to filter material information to analysts before releasing it to the public.
You touched on this problem in your Barrons article:
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Compaq's Friday earnings warning followed cautionary comments earlier in the week from its chief financial officer, Earl Mason, at a Merrill Lynch technology conference in San Jose. We can't tell you precisely what Mason said -- Merrill didn't let any journalists in, and Compaq can't seem to find a transcript of his remarks. But according to a report last week by Lucianne Painter, Merrill's PC analyst, Mason warned that the pricing environment in North America appears to be tougher than previously thought. Painter, in fact, dropped her short-term rating on Compaq to "accumulate" from "buy," and cut her first-quarter earnings estimate to 32 cents a share from 37 cents.
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CompUSA shares plunged 6 1/2, or 20%. Apparently, CompUSA disclosed this information by dribbling it out to analysts before releasing it to the public....
Clearly this is two cases were company management is releasing material information to analyst before releasing it to the public. This is a clear violation of SEC rules.
Below is an excerpt from an interview with SEC chairman Levitt:
SEC's Levitt Sees Apparent Insider-Trading Increase By Analysts
Dow Jones Online News, Monday, March 02, 1998 at 01:24
By Paul Beckett, Dow Jones Newswires
WASHINGTON -- Securities and Exchange Commission Chairman Arthur Levitt said he was troubled by an apparent increase in insider
trading by analysts.
In a speech to a conference of securities lawyers here Friday, Mr. Levitt said he was "concerned about one increasingly worrisome form of trading on the basis of nonpublic information." That trading, he said, appears to occur when a company tells news to some of its "favorite Wall Street analysts" before the news is made publicly available. "In the interval -- after the analysts know the news, but before the public knows it -- there is a great deal of unusual trading," Mr. Levitt said. "Well, it doesn't take Oliver Stone to imagine how that might come about."
Mr. Levitt said it would be preferable that calls to analysts and selected institutional investors not come before a news release, "and
even then, these discussions should not divulge new material information not contained in that press release."
The industry, Mr. Levitt cautioned, should exercise self-restraint "before we have to step in." He said it was clear to him and to the SEC's enforcement division "that issuers should not selectively disclose information to certain influential analysts in order to curry favor with them and reap a tangible benefit, such as a positive press spin."
Mr. Levitt said "any investor looking at this situation would think
it is wrong for those who have received this information to trade before the public announcement or to tip off their friends, family members or colleagues in their firms." Mr. Levitt said that legally, "you can split hairs all you want, but ethically, it's very clear: If analysts or their firms are trading -- knowing this information, and prior to public release -- it's just as wrong as if corporate insiders did it."
He noted that securities firms are supposed to have barriers to stop
the spread of such information. "But when we see trading spikes in this short time period," he said, "I worry about the effectiveness of those internal mechanisms."
The "Analysts First" problem is rampant in the securities industry and it is frustrating to have SEC sit back with such ineptness. What more evidence do they need. The "Analyst and Large Shareholder First" practice happens time and time again. CPQ and CompUSA are just two of the latest examples. SEC should make it a high priority to enforce this SEC rule. They should send out guidelines to company management with a stern warning that these disclosure rules must be followed. There are now millions of small individual investors that select their own stocks and do their own research. SEC should enforce the rules with more vigor.
How about doing a story on this problem. You could get interviews from the millions of investors that feel they don't have a level playing field. Check out Silicon Investor or Motley Fool etc.
I would like to see a newspaper interview ask Mr. Levitt why companies feel so comfortable giving material information to selected analysts before going public with the information.
Why is it that CEO's and company officials continue to violate SEC rules and favor analysts?
Why is it that the guidelines he proffered in the preceding interview are seldom followed and simply ignored by CEO's and company management?
I would like to ask him, if not now when will SEC enforce the "material information disclosure rules"?
What does he think about the CPQ or CompUSA disclosing material information to favored analysts? Does he plan to do anything about this? |
