Regulators approve rules for disclosure

Associated Press

WASHINGTON — Federal regulators yesterday tentatively approved new rules to tighten companies' financial disclosures and stock sales by executives.

The rules, issued for public review by the Securities and Exchange Commission, were ordered by Congress in response to accounting scandals that rattled confidence in the stock market and the integrity of corporate America.

The rules likely will be adopted formally after a 30-day comment period. The vote by the five SEC commissioners was unanimous.

Among other things, the rules proposed yesterday would prohibit a company's officers and directors from buying or selling company stock during periods when employees are unable to sell company stock from their pension accounts.

Top Enron executives and members of its board of directors have been criticized for reaping hundreds of millions of dollars by selling company stock in 2000 and 2001. Many ordinary employees lost nearly all their retirement savings as Enron stock fell over a period of several months and they were blocked from selling it for about three weeks in the fall of 2001.

The rules would require companies to include in their periodic financial reports a clearly written discussion of all off-balance-sheet transactions and to file earnings statements with the SEC within two days of their announcement, to make them available to investors more quickly.

Companies that use "pro forma" reporting — a type of financial reporting designed to play down negative results — would have to ensure that the information was not misleading or false.

Pro forma results, especially favored by high-tech companies, are hypothetical numbers supposed to focus on the profits and losses of ongoing operations. They show up in corporate press releases announcing earnings and often paint a different picture from the official results filed later with the SEC.

The SEC warned investors in December to be wary of companies that use pro forma reporting.

The agency this month proposed rules prohibiting a company's officers and directors from improperly influencing or misleading its auditors into signing false financial statements. Companies would have to make public an internal control report by management and to disclose whether they have adopted an ethics code for senior officials — or explain why they did not.