Glen, it appears that the SEC does not like these closed analyst meetings. I think the reason that the 'Thing' is not mentioned here is, because they've started with companies with profits first.
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Washington, Nov. 19 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman Arthur Levitt condemned U.S. companies that reveal market-moving information to securities analysts before releasing it to the public.
''As far as I'm concerned, that's cheating, and it's a stain upon our market,'' Levitt said in an interview. ''We're clearly concerned about it, we're clearly looking for it.''
Some executives routinely exclude reporters from conference calls they convene with analysts and money managers who follow their companies. In some recent cases, stock prices moved more than 25 percent after companies disclosed information in private sessions. Sometimes, hours passed before companies announced the news to the public.
Levitt said this practice, known as selective disclosure, puts small investors at a disadvantage to institutional investors, such as pension and mutual funds, that have analysts to represent their interests.
The practice also can harm the integrity of U.S. markets, Levitt said. ''If some individuals or organizations are getting information that others are not getting, that means our markets are no longer trustworthy and no longer credible, and that can't be tolerated,'' he said.
Excluding Press
Levitt, the top securities regulator in the U.S., warned against special treatment of favored analysts or big investors in a February speech. Companies and brokerages could face insider trading sanctions if analysts or their clients profit from important corporate information before it's available to the public, he said.
The SEC chairman went beyond those earlier remarks by explicitly urging companies to include reporters in their analyst calls. He voiced support for news organizations that try to gain access to these calls and then report on the discussions.
''The media should persist,'' said Levitt, who used to own ''Roll Call,'' a Washington newspaper that covers Congress. ''They should press their case and continue to press it.''
Some executives prefer to provide exclusive briefings ''to curry favor with selected analysts'' who can influence the price of the company's stock, the SEC chairman said. He declined to give examples.
In recent weeks, a number of major companies such as MCI WorldCom Inc., Microsoft Corp., Amgen Inc., Gap Inc., Monsanto Co., and Cendant Corp. held closed discussions with analysts about company earnings or other corporate developments.
Tellabs Disclosure
In September, Tellabs Inc., a telephone equipment maker, told some money managers and analysts on a conference call that its third-quarter profit and sales wouldn't meet estimates. The Lisle, Illinois-based company's shares fell as much as 27 percent after the call began and before the information was more widely disseminated.
Tellabs Chief Executive Michael Birck said at the time his executives weren't planning to make significant comments in the session with analysts. ''We didn't think we were announcing anything of consequence there,'' he said.
Levitt said his staff is monitoring corporate practices on selective disclosure of important corporate information, and is prepared to take enforcement action if necessary.
''It's clearly ethically wrong,'' he said. ''It wouldn't surprise me to see the commission considering taking action if the offense is sufficiently egregious.''
The commission won't be preparing any rule changes to cope with the problem, Levitt said, because companies have improved their practices since he criticized selective disclosures earlier this year. ''I have seen progress and I'm hopeful that we'll see more,'' he said.
Improvements Seen
A National Investor Relations Institute study earlier this year found that fewer than 20 percent of companies inform analysts before telling the public that earnings will fall short of expectations. That's down from about 33 percent in 1995, according to NIRI, a trade group of corporate investor-relations officers.
Northern Telecom Ltd., North America's No. 2 telephone- equipment seller, told analysts and money managers at a September meeting in New York that second-half revenue growth would be less than expected because of disappointing demand in Europe and Asia.
Northern Telecom's stock fell 13 percent that day, to 35 1/2. The Brampton, Ontario company issued a public announcement four hours after shares began to fall and three hours after trading was halted.
Northern Telecom Chief Executive John Roth explained the delay in the company's announcement, at the time, by saying: ''We had to understand what people thought they heard. We were surprised with the reaction in the marketplace.''
Recent Examples
IXC Communications Inc. told analysts and some investors in a conference call yesterday morning that fourth-quarter results wouldn't meet analysts' expectations. The company didn't issue a statement until 1:30 p.m., after trading had been temporarily halted. The wholesale phone company's shares dropped 25 percent yesterday, falling 9 to 26 3/4.
''We miscalculated the market reaction and the extent of the market's interest in this,'' said IXC's chief financial officer, Jim Guthrie. ''When we saw it had a larger effect, we moved as quickly as we could to issue a press release.''
Last week, Dell Computer Corp. excluded reporters from a conference call after the world's No. 3 personal computer maker reported fiscal third-quarter earnings. Dell is one of the most actively traded stocks in the U.S., with an average daily volume of about 39 million shares in the last three months.
''We just historically haven't included folks outside the analyst community,'' Dell spokesman T.R. Reid said at the time.
Levitt, though, said he plans to keep pressing so that companies provide important information to the press and public investors at the same time it's available to Wall Street professionals.
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