Updated from 1:56 p.m. EST
When Harvey Pitt took over the
Securities and Exchange Commission
last year, many investors expected to see a more lenient SEC than the one Arthur Levitt headed. But the mistrust sown by the accounting shenanigans at
is making Pitt look tougher than anyone had reckoned.
Wednesday the agency proposed sweeping new corporate disclosure rules that would require faster and more extensive reporting of hidden debt obligations and ratings changes. Notably, the list is replete with the hot-button issues surrounding Enron's collapse, as well as the watchwords of a number of other accounting dust-ups, such as those at
As such, the measure is clearly aimed at calming down an investing public riled by the notion that companies' books can't be trusted. In the wake of the high-profile accounting problems that have swept the Street since Enron's demise, shareholder advocates and others have proposed even more stringent rules. Pitt's salvo Wednesday appears to have calmed the market; stocks were up about 1%. Still, exactly what form these rules will eventually take isn't clear at the moment.
For now, the agency's proposal seems likely to please at least some of the watchdog's many constituents. The SEC said it will seek to require companies to publicize insider securities transactions, "including transactions with the company," in real time. Under the current rules, insiders needn't disclose a sale of stock until the 10th day of the following month; in sales back to the company, the clock doesn't start ticking until the next year.
The SEC will also propose expanding the list of so-called significant events that must be disclosed in 8-K filings, to include "changes in ratings agency decisions, obligations that are not currently disclosed and lock-out periods affecting employee stock-ownership plans." Currently, companies use 8-K filings to note earnings reports, management changes and new auditors, among other things.
Those proposals obviously bear Enron's fingerprints, but the last of them, the employee stock issue, also calls to mind
disclosure Monday that its chief financial officer had quit after apparently selling company stock before an earnings warning. And in an echo of recent developments at Tyco International, the SEC said it would also seek to require company officials to make real-time filings when they sell stock back to a company.
Another proposal would shorten the time companies have to file their annual reports to 60 from 90 days, and the time in which they have to file quarterly reports to 30 from 45 days. In addition, the SEC will seek to have the list of disclosable events expanded to include ratings changes, insider transactions, defaults, equity offerings that aren't in company prospectuses, waivers of corporate ethics or conduct rules for insiders, changes in the rights of securities holders, definitive agreements, loss or gain of important contracts, and restructurings.
Barry Barbash, an attorney with Shearman & Sterling who headed the SEC's investment management division under Levitt, says the proposed rules "are tied to the chairman of the SEC's desire to get information into the public's hands more quickly. They're all thematically tied." Barbash says other proposals based on the same goal of speeding disclosure are likely in the works.
Just how the new rules read in the end will depend on the outcome of the proposal-and-review process. First the proposal gets drafted. After that, it's typically given 60 to 90 days for public comment. Then the SEC reviews comments and decides.
During the Levitt years, the SEC had stepped up enforcement actions. It drafted rules banning companies from the practice of telling only certain people, such as analysts, about important information, and frequently locked horns with accounting firms over practices the agency said compromised the independence of their audits. As a private practice lawyer, Pitt had been on the other side of many of the SEC's suits. (Back in the days of fat pinstripes and fatter cigars, he also defended famed market manipulator Ivan Boesky.)
Brokerages, accounting firms and many companies had lobbied heavily for Pitt's nomination, and in his early days it looked as if they got what they wanted. Though he didn't openly take issue with Levitt's policies, he did indicate that he looked for the agency to become more congenial while he was at the helm. But the notion that Pitt would be some kind of patsy for fat cats was always wrong, according to Barbash. "I always fully expected him to be a very tough enforcer," he says.
After Enron, of course, Pitt may not really have a choice in the matter.