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SEC eyes TV stock pickers
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May 4, 2000: 6:07 p.m. ET
Regulators are concerned over TV stock recommendations absent disclosure
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Securities regulators are concerned that analysts who talk stocks on television do not always reveal that their firms have financial ties with the companies they discuss, according to regulatory sources.
The Securities and Exchange Commission is also talking with business-oriented network and cable television shows about improving the information that analysts provide if they have a stake in a company; a process known as disclosure.
In a speech next week, SEC Chairman Arthur Levitt will discuss the fact that analysts rarely disclose on air whether their company has a financial interest in stocks they talk about, according to an SEC spokesman.
Levitt is slated to speak on financial reporting at New York University next Wednesday, May 10, and will discuss analyst disclosure, among other financial-reporting matters.
"He will note his concern, and go into further detail," said SEC spokesman Chris Ullman. "We're dealing with analysts that work at regulated entities. There are rules that talk about disclosure. People need to properly disclose certain information, and TV analysts typically don't."
 Levitt touched on the topic in an October speech in New York. He criticized "a web of dysfunctional relationships" involving analysts, who he said often have conflicts of interest that mar their ability to give unbiased advice.
"How many times have we seen an analyst on television being asked to list his top five picks? And how many times has that analyst taken the opportunity to caution viewers, 'By the way, my employer recently underwrote three of these stocks?'" Levitt asked in October.
Securities companies often claim that the comments are extemporaneous, that they are covered by prior disclaimers or that disclosure is impractical, Levitt continued. He said he didn't "find any of these arguments very persuasive."
Analysts claim free speech
The prospect of heightened scrutiny doesn't appeal to many stock pundits. Jim Glickenhaus, general partner of Glickenhaus & Co., said it should come as no surprise to viewers that he owns the stocks that he talks about on television and that he believes in.
 In any case, his free speech is protected under the First Amendment to the Constitution regardless of securities-industry rules, he said, as long as it is true or his opinion.
"No matter what the SEC, in their infinite stupidity, might try to do, it would be thrown out by the Supreme Court," he said.
Glickenhaus, who appears in the media frequently as a stock picker, including on the CNNfn television channel and on this Web site, said a disclosure that he has a vested interest in the stocks he discusses would serve little purpose.
"You should be worried about anything anybody says," Glickenhaus said. "There are very few people who are purely academic, sitting in an ivory tower."
Disclosure standards
The SEC does not regulate the media, Ullman, the SEC spokesman, pointed out. He said it does not intend to. It has, however, contacted all the major business television shows. "The goal here is to keep them apprised and to seek their input," Ullman said.
Ullman declined to discuss what measures the SEC might take to improve disclosure. One observer speculated the commission is "running the idea up the flag pole" to suggest that analysts change their ways.
Both the New York Stock Exchange and the National Association of Securities Dealers, parent of the Nasdaq stock market, impose disclosure standards on their members. For instance, the NASD requires its members to disclose certain information in any "advertisements and sales literature."
A broker-dealer that belongs to the NASD must have a "reasonable basis" for any recommendation it makes, according to those rules. The NASD also requires its members to disclose:
- whether they usually make a market in a security they are recommending;
- whether the brokerage or its officers own options, rights or warrants in the stock;
- and whether the brokerage was a manager or co-manager of a public offering of the stock in the last three years.
Those standards have caused brokerages to develop a set of boilerplate disclosure statements. They typically append them to any print documents or Web-site information they release.
But analysts often do not provide the same disclosure information when they are interviewed on radio or television, or over the phone.
Do standards apply?
An NASD spokeswoman confirmed that the NASD has been working with the SEC on how to apply disclosure rules to television and other media. But the spokeswoman, Nancy Condon, said it was unclear whether discussing a stock on TV amounts to a recommendation, and whether the NASD's standards apply. Television appearances don't involve recommending a product or stock to a specific person, Condon pointed out.
Still, NASD is hashing those points out with the SEC. "We share their concerns and we're going to continue to work with them," she said.
Not all stock analysts reacted negatively to the SEC attention. "I think it's an appropriate issue to raise," said Joe Battipaglia, chairman of investment policy for Gruntal & Co.
Battipaglia, who makes frequent media appearances, pointed out that brokerages such as Gruntal make disclosure statements in written information, on their Web site and before meetings like the "morning call," at which analysts discuss companies.
'Brokerages should regulate themselves'
He views talking to the media as disseminating the same information. The brokerages have already disclosed their ties to the stocks they discuss, he said.
 "They've made the formal disclosure to the public clientele about their point of view," Battipaglia said. "It's up to the firms that monitor what is being said to make sure the cart is not put before the horse."
Securities-industry companies normally restrict who can talk with the media, he pointed out. Brokerages also review analysts' written comments to remove any promises, inflammatory language, rumor mongering and the like.
"By and large the system works very well," he said. But Battipaglia conceded it is open to abuse or accidental misuse in broadcast media, when comments are less easily reviewed. "Put a microphone in front of somebody and you never know what they're going to say," he pointed out.
He encouraged investors to do their own research or contact the company recommending a stock. "There's a bit of caveat emptor in everything that's done here." He also said that analysts need to police themselves. For instance, he said he avoids talking about thinly traded stocks that are more open to manipulation.
Remedies seen as unpopular
While the conflicts are most obvious with "sell-side" analysts who make buy-or-sell recommendations on stock, Battipaglia conceded there have also been instances of "buy-side" money or portfolio managers making questionable comments in an effort to manipulate a stock.
But the SEC already enforces attempts to manipulate stock illegally, he continued. Mutual-fund managers have already become leery of talking about specific stocks, he pointed out.
 Hugh Johnson, chief investment officer of First Albany, also frequently speaks about the stock market through various media. He said he feels the SEC has to tread lightly to avoid overregulation.
"In order to regulate the small number of occurrences where they may be a problem, the government may be taking too large a step into the private sector," he said.
Disclaimers that are easy to make in print are cumbersome to make on broadcast media, he pointed out. "I think it takes away from the medium -- it's distracting," he said. The limited disclosure many television shows make, such as that analysts opinions are their own and not those of a network or channel, is probably sufficient, he said.
Battipaglia welcomes SEC guidance
Battipaglia said that by tightening disclosure rules, the SEC risks infringing on analysts' speech rights. Other measures, such as requiring securities companies to monitor broadcast transcripts, e-mails and phone calls for disclosure, might be hard or costly to enforce, he said.
But he welcomed a statement clarifying the SEC's position on broadcast disclosure. "I would not feel put upon, at least in the first pass, if the SEC would put out guidance on these issues," he said.
CNNfn.com this year started running a disclaimer accompanying stories where analysts or other experts discuss stocks. It cautions investors to "consider the source of any advice on stock selection" and recommends that investors do independent research.
"Various factors, including personal or corporate ownership, may influence or factor into an expert's stock analysis or opinion," the disclaimer says. 
-- Click here to send email to Alex Frew McMillan
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