SEC to Vote on News Disclosures Aug. 10 Amid Doubts
Washington, July 27 (Bloomberg) -- The Securities and
Exchange Commission has scheduled a vote in two weeks on whether
to adopt a rule halting selective disclosure of company news, as
two of the four commissioners expressed doubts about the plan.
``I have lots of concerns,'' SEC Commissioner Laura Unger
said in an interview. ``It could result in the release of either
too little information or too much information that would be
meaningless.''
SEC Commissioner Isaac Hunt said, ``The system works pretty
well now, and the proposal is so broad it could change companies'
ways of doing business and impose unnecessary legal costs.''
The commission vote is scheduled for Aug. 10, said Hunt and
other SEC officials, though public-meeting dates are sometimes
changed at the last minute. An SEC spokesman declined comment.
The proposal, issued for public comment last December, would
require companies to release market-sensitive information -- about
profits, new products, acquisitions and the like -- to everyone at
the same time. It seeks to limit the type of information provided
by companies during private briefings of securities analysts and
institutional investors.
Unger, a Republican, and Hunt, a Democrat, said they haven't
yet decided how they will vote. SEC Chairman Arthur Levitt and
Commissioner Paul Carey -- both Democrats -- said they will
support the proposal. Three of the four commissioners have to vote
for the proposal for it to pass. The fifth seat on the SEC is
vacant.
``This proposal is very important to me,'' said Levitt, who
has called selective disclosure ``a stain upon our market.'' He
has argued that these private briefings can end up giving some
investors a jump on everyone else.
Some Revisions
SEC staff is now revising the plan to try to accommodate some
of the concerns expressed, said Hunt and other SEC officials.
Ultimately, one legal expert predicted, Levitt will prevail
and the proposal, with some modifications, will be adopted.
``The chairman is a master diplomat,'' Columbia University
law professor John Coffee said. ``He'll find a way to have the
proposal massaged so that it placates the commissioners without
sacrificing the benefits of the rule.''
Levitt hasn't lost a commission vote to approve a rule during
his entire seven-year tenure, said SEC spokesman Chris Ullman.
Under the SEC plan, companies could release their news in a
press release, on their Web site, or in materials filed with the
SEC. Those that unintentionally release information to select
recipients would have up to a day to also provide it to the
general public. Corporations that don't comply with these
requirements would face possible fines.
Brokerages said they will use the next two weeks before the
vote to try to persuade Hunt and Unger to vote against the
proposal.
``We're going to keep pounding the drum to anyone who will
listen,'' said Stuart Kaswell, general counsel of the Securities
Industry Association, the brokerage trade group.
Congressional Appeal
The SIA also may seek meetings with some members of Congress
to try to get them to weigh in, Kaswell said. Brokerages, which
employ analysts, have argued that the proposal could chill the
flow of information from companies to the analysts and ultimately
to the public.
The National Investor-Relations Institute, a group of
corporate executives, has joined the SIA in arguing against the
rule, saying it's unnecessary. The institute cited a recent survey
of 225 companies that found 82 percent already let individual
investors on analyst conference calls, and more than half put
these calls on the Internet.
``We're certainly going to try to meet with the wavering SEC
commissioners to present new information,'' NIRI president Louis
Thompson said.
Dow Jones & Co., which owns the Wall Street Journal, has
said the rule could deter companies from giving news exclusives to
journalists.
The SEC plan, though, has drawn unusual support from
individual investors, who accounted for the vast majority of the
6,000 comment letters sent to the federal agency.
One letter, from a North Carolina man who founded two small
high-tech businesses before entering the priesthood, drew on his
personal experience.
``I have personally witnessed the kind of private information-
sharing between fast-growing companies and the shark pool of
securities analysts,'' said Robert Wickizer, a priest at St.
Mary's Episcopal Church in High Point, North Carolina.
Strong Support
Carey, the SEC member other than Levitt who plans to support
the proposal, said he was influenced at least in part by the
overwhelming support for the plan from individual investors.
``Their welfare is why we're here,'' he said.
Unger and Hunt expressed concerns about the proposal earlier
this year, before reviewing the comment letters. They said their
doubts haven't been allayed.
Hunt said the proposal is so broad it could limit the
information provided by companies not just to analysts, but also
to corporate suppliers and consultants.
``All these companies might have to use lawyers to review
information passed on in the course of routine business
transactions,'' he said.
Under current rules, the SEC has pursued few cases involving
selective disclosure.
One active investigation involves clothing retailer
Abercrombie & Fitch Co., whose stock fell 13 percent last Oct. 8
after a company executive warned one analyst of sluggish sales
expectations, news organizations reported. Abercrombie didn't make
the forecast public for five days.
Other questions about companies' disclosure practices
persist.
For example, Schering-Plough Corp., maker of the world's top-
selling allergy drug Claritin, earlier this week invited only
analysts and representatives of its largest investors to telephone
calls on its second-quarter results.
Schering-Plough ``adheres to the appropriate disclosure
practices pertaining to the release of material information,''
company spokeswoman Denise Foy said.
--Neil Roland in Washington (202) 624-1868 or
nroland@bloomberg.net /rp |
