SEC wants stock analysts to be candid
By Leigh Strope
WASHINGTON Wall Street analysts must affirm that their stock picks aren't influenced by compensation or their employer's investment banking business under a proposed rule backed yesterday by the Securities and Exchange Commission.
The regulation, which is subject to a public comment period and another vote, is a "start on the road to improving investor confidence," SEC Chairman Harvey Pitt said.
The move follows a new SEC requirement that the 1,000 largest corporations provide sworn statements from their chief executives vouching for the accuracy of financial reports.
Pitt urged investment firms to start requiring analysts to verify the accuracy of their stock recommendations now instead of waiting for the government's rule-making process to issue a mandate.
"I think it's right that we ask firms to start complying with this now," Pitt said.
The proposal would require that financial analysts vouch for the ratings they give companies in media interviews, public appearances and reports. Reports must contain analysts' statements affirming that they were not influenced by compensation or any other relationships with companies.
An analyst would have to disclose how much compensation was received, who received it and its purpose, if it had a relationship to the company being reported on.
The SEC is conducting investigations into industry practices at about a dozen firms, enforcement division director Stephen Cutler said.
The proposal comes as the SEC faces increasing complaints from critics that it has failed to respond aggressively to mounting allegations of corporate fraud. Pitt has become a divisive figure because of his past close ties with the accounting industry as a securities lawyer, and several top lawmakers have called for his resignation.
Pitt has been quietly lobbying Congress for a raise and a promotion, and asked lawmakers to elevate the SEC to Cabinet status as part of legislation to crack down on corporate fraud. He made no mention of that request at the SEC meeting yesterday and refused to answer reporters' questions.