|
SEC lays down the gauntlet
|
 |
February 13, 2002: 5:36 p.m. ET
In midst of Enron fiasco, the regulator is preparing a host of new rules.
By Staff Writer Victoria Zunitch
|
NEW YORK (CNN/Money) - The other shoe has dropped. Amid the furor over the Enron Corp. bankruptcy, the Securities and Exchange Commission revealed on Wednesday a long list of new rules it has been considering that would tighten up the requirements for the disclosure of corporate information.
Several of the proposed changes would directly address problems at the core of Enron's rapid descent from one of the U.S.'s apparently most successful companies to the largest bankruptcy ever filed. For example, the SEC wants corporate officers and directors to report sales of their company's stock back to the company on a current basis instead of 45 days after the end of the fiscal year, and it wants important accounting policies to be disclosed in detail in annual reports.
It also wants to expand the list of material events that must be disclosed on Form 8-K, including, for example, employee-benefit plan lock-out periods temporarily preventing employees from selling company stock, and transactions involving the company's securities, including derivatives, with its executives and directors. All of these items have been issues in Enron's collapse.
Other changes floated by the SEC Wednesday were in the works long before Enron ran into trouble, such as requiring that certain information be disclosed more quickly, say corporate securities attorneys. It's considering requiring that quarterly reports, which include quarterly earnings results, be filed within 30 days of the end of the quarter rather than the current 45 days, and that annual reports be filed within 60 days of the end of the fiscal year instead of 90 days.
The SEC also wants these and some other reports posted on corporate Web sites as soon as they're filed with the SEC.
Finally, the SEC wants Congress to amend the Securities Exchange Act of 1934 to dramatically shorten the amount of time, currently up to 40 days, that corporate insiders have to report trades in the company's securities.
In the meantime, it said it may require the companies to immediately report insider trades.
"It's really a combination of fleshing out what (SEC) Chairman [Harvey] Pitt has outlined as one of his priorities - more current disclosure - and certain particularities that have arisen as a result of the Enron situation," said Stanley Keller, an attorney with Palmer & Dodge LLP and chair of the American Bar Association's Committee on Federal Regulation of Securities.
Do you want it right, or right now?
Wednesday's announcement marks the first step in the new-rules process. The SEC's five commissioners must still craft a formal proposal of the new rules, which an SEC spokesman estimated could be done within the next two to three months. Then they're subject to public review and comment, a process that often prompts the SEC to amend its proposals.
One issue that could arise is the tension between asking companies to not only provide more information, but to do it more quickly, corporate attorneys say.
"Those accelerated timetables, as is, would present companies with a challenge," said Peter J. Loughran, a securities law partner at the New York-based law firm Debevoise & Plimpton. He cited the proposal to require quarterly reports within 30 days of the end of a quarter. Even if a company finishes preparing its report 15 days after the quarter ends, the auditors and the board's audit committee would be left with only 15 days to do their work.
The requirement for virtually immediate disclosure of certain information also raises the risk that companies will get it wrong, Keller notes. He thinks there may need to be a review of the standards of corporate liability and an allowance made for companies that act quickly, and in good faith, but nonetheless make errors.
Keller also thinks that the wide variety of corporate circumstances should be taken into account. "There needs to be recognition that public companies come in all sizes and shapes, and have all different levels of capability," he said. Smaller companies may not have the resources, or be able to get attention from their outside auditors, in time to get their reporting done both more thoroughly and more quickly, he said.
In the SEC's written statement announcing the changes, Chairman Pitt acknowledged that there's more to come. "The steps we announce today represent only a beginning in the realization of an important regulatory agenda," Pitt said in a press release.
Pitt said the SEC also plans to propose other rule changes affecting financial reporting and disclosure requirements, accounting standard-setting, and regulation of the auditing process and profession and corporate governance. 
Click here to send mail to Victoria Zunitch
|
|
|
|
|
|
|
