SEC Looking at Ways for TV Stock Analysts to Disclose Conflicts
Washington, June 8 (Bloomberg) -- The Securities and Exchange Commission is exploring ways to get analysts such as Goldman, Sachs & Co.'s Abby Joseph Cohen and Merrill Lynch & Co.'s Henry Blodget to disclose possible conflicts of interest when they recommend stocks during television appearances.
The SEC is privately asking financial TV programs and networks such as CNBC and CNNfn for their views on how potential analyst conflicts can be disclosed ``in a meaningful but unobtrusive manner'' on the air, SEC spokesman Chris Ullman said.
The possible conflicts that concern the SEC involve analysts' personal investments in stocks they recommend, and their employers' investment-banking work for companies reviewed by the analysts, he said.
``To the extent that investors understand the potential conflicts that analysts may have, it will improve their ability to make sound investment decisions,'' Ullman said in an interview.
The federal agency plans to funnel broadcasters' comments to the National Association of Securities Dealers and New York Stock Exchange, which are considering whether to propose disclosure guidelines or toughen policing of existing standards, Ullman said.
The SEC is running into early resistance both from TV and brokerage executives.
``The SEC, with the best of intentions, is doing something that could be very, very Big Brother-ish down the road,'' said Neil Cavuto, anchor of the ``Your World'' business news show on News Corp.'s Fox News Channel. ``I don't think the SEC belongs in newsrooms.''
TV Celebrities
The most prominent stock analysts -- such as Cohen, 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 and investor interest in the stock market.
Analysts frequently are asked for their leading stock picks on round-the-clock financial news networks such as General Electric Co.'s CNBC, which reaches into 72 million homes, and Time Warner Inc.'s CNNfn, which reaches into 11 million. Bloomberg Television, owned by the parent of Bloomberg News, competes with those and others in the market for televised financial news,
Current disclosure obligations in U.S. securities rules are aimed at written stock recommendations by analysts, not verbal picks made on television, the SEC's Ullman said. Any regulatory obligations would fall on brokerages rather than news organizations, over which the SEC has no authority, he said.
The SEC is seeking broadcasters' views on how on-air disclosures might be made, the SEC spokesman said. Among methods under consideration are statements by a TV host or analyst, written streamers that scroll across the screen, and written boilerplate at the end of a program.
Bully Pulpit
The SEC's regulatory effort steps up attempts by Chairman Arthur Levitt to use his bully pulpit to press for greater disclosure by analysts.
``I worry that investors hear from too many analysts who, whether they realize it or not, may be just a bit too eager to report that what looks like a frog is really a prince,'' Levitt said in a recent speech.
Of the 28,000 stock recommendations being tracked by First Call/Thomson Financial, fewer than 1 percent are ``sell'' recommendations, with about 74 percent ``buys'' and 25 percent ``neutral,'' a First Call spokesman said.
The SEC hasn't set a deadline for the NASD and NYSE, which police U.S. brokerages, to come up with proposals, Ullman said.
Several broadcasters and analysts expressed skepticism about the SEC's efforts.
Fox's Cavuto said any requirement for verbal TV disclosure could undermine journalistic quality. ``It would stymie interviews and make them very stilted,'' he said.
A public television producer said TV networks shouldn't be asked to determine possible analyst conflicts or make sure they're disclosed on the air.
``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.''
`Ad Lib' Interviews
One of Wall Street's largest brokerages said it would be impractical for TV analysts to provide detailed disclosure.
``The TV interview is done on an ad hoc, ad lib basis,'' Prudential Securities Inc. spokesman Charles Perkins said. ``An analyst may not know what stocks he's going to be asked about, and he shouldn't be asked to remember banking relationships in the back of his mind.''
The Prudential Insurance Co. of America unit is the fifth largest U.S. brokerage in terms of the number of brokers. Acampora, Prudential Securities' technical-research director, frequently is interviewed about stocks on TV.
A legal expert said the SEC may have difficulty getting TV networks to abide by any new standards it comes up with for analysts.
``The media doesn't take this type of dictation from brokerages or their regulators,'' said Columbia University law professor John Coffee. ``A station like CNBC could react by inviting experts to appear who don't fall under securities regulation.''
While brokerage analysts are overseen by the NASD, analysts who work for institutional investors, banks and insurance companies are not.
Disclosure Requirements
The NASD is working ``on the possible development of more detailed disclosure requirements,'' NASD Regulation spokeswoman Nancy Condon said.
``We share Chairman Levitt's concerns about the need to provide investors with adequate disclosure about the financial interests that research analysts, other associated persons or their firms may have in securities they recommend, particularly in televised interviews,'' Condon said.
An NYSE spokesman declined comment.
A CNBC spokeswoman said analysts ``regularly'' disclose their personal investments on the air because the network formally asks them in advance to declare holdings of stocks they might recommend. It doesn't ask them, though, about their firms' investment banking customers, CNBC spokeswoman Amy Zelvin said.
A CNNfn spokesman said analysts' on-air disclosures are irregular because the network makes no formal advance queries. The network is preparing a one-page guideline, much like that used by CNBC, that would request analysts' disclosure of personal investments in stocks they recommend, CNNfn spokesman Jeff Cusson said.
The SEC's Ullman said analyst disclosures on the air are currently ``rare.''
In one case, Goldman Sachs' Cohen, whose correctly bullish forecasts have made her a closely followed Wall Street guru, recommended at least two stocks in a January TV appearance without mentioning her firm's investment banking relationship with these companies, Brill's Content magazine reported. The two stocks were Citigroup Inc. and the Axa SA insurance company, according to the magazine.
``There's no connection between Abby Cohen's research and any of our relationships with these companies,'' said Goldman Sachs' spokeswoman Kathleen Baum. ``We abide by every existing rule that affects our industry. There's nothing unusual going on here.''
Jun/08/2000 13:15 ET
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