, the chairman of the
Securities and Exchange Commission
, is urging companies to open their conference calls to the public, enabling all investors to have access to the same information currently being given to a selected few.
Levitt plans to take on the controversial nature of conference calls this evening, according to the text of a speech he is scheduled to deliver to the
New York Economic Club
. He will also say the SEC is considering new rules in the next few months to regulate "selective disclosure" that leaves small investors out of the loop.
"I appeal to companies, in the spirit of fair play: make your quarterly conference calls open to everyone, post them on the Internet, invite the press," Levitt is quoted saying in the speech's text, which was released by the SEC.
A number of companies have been criticized in recent months for making "selective disclosure."
Silicon Valley columnist,
reported earlier this month how
detailed information to a handful of institutional investors that was not found in its
registration statement, a disclosure form for companies preparing initial public offerings.
Following Lashinsky's article, Webvan, an online grocery store, announced it was delaying its IPO and
refiled its amended S-1 registration statement. And
Abercrombie & Fitch
, according to
The Wall Street Journal
, disclosed poor quarterly earnings to an analyst at
several days before releasing the information to the public.
Some companies already allow reporters and investors to listen in on selected conference calls, usually via the Internet. But others restrict these calls to analysts.
Moreover, many companies give out meaty pieces of company information to analysts during corporate "roadshows," which the public and press are forbidden to attend because of SEC restrictions created initially to benefit small investors.
"The behind-the-scenes feeding of material nonpublic information from companies to analysts is a stain on our markets," Levitt says in his speech. "The selectiveness is a disservice to investors and it undermines the fundamental principle of fairness."
While saying analysts serve "an important role in ensuring the efficiency of our markets," Levitt criticized a changing relationship between analysts and the companies they follow. Levitt said analysts are "protecting the business relationship at the cost of fair analysis" because analysts either do not want to report critically on the company and get shut out from new information, or analysts' compensation is tied "to the profitability of their firm's corporate finance division, and their contribution to the deals to which they are assigned" by their bosses.
"Is it any wonder that many Wall Street firms would prefer that analysts heed their mothers' admonitions: If you can't say anything nice, then don't say anything at all," Levitt says in the speech.
The SEC has not only been trying in recent months to get a handle on how investing information is disseminated because of the surge in available information via the Internet and the growing number of business news outlets, but it is also taken a larger look at insider trading.
"Today, the stakes are even greater," Levitt says in the speech. "No longer can we take for granted the international supremacy of U.S. capital markets. Technology has set into motion dazzling challenges to market mechanisms whose free market dynamism is being impeded by anticompetitive handcuffs imposed by participants and sanctioned by regulators. The dangers are real and the opportunities abundant."