Battle Over SEC Plan Pits Investors Against Insiders

A Securities and Exchange Commission proposal to halt selective disclosure of company news is turning into a battle between individual investors and industry insiders.

Top executives at Merrill Lynch & Co., Lehman Bros. Holdings Inc., A.G. Edwards Inc. and other firms asked SEC Chairman Arthur Levitt on Thursday to abandon the proposal.

“The net effect of the rule will be to hinder the flow of information to investors,” said the letter, signed by 15 current and former chairmen of the Securities Industry Assn., the brokerage trade group.

The SEC plan, though, has drawn unusual support from individual investors, who accounted for the vast majority of the 6,000 comment letters sent to the federal agency.

In their letter, the current and former Wall Street executives called on Levitt instead to form a blue-ribbon study commission that would make recommendations on the issue.

The SEC has scheduled an Aug. 10 vote on the proposal, which would require companies to release market-sensitive information--about profits, new products and the like--to everyone at the same time. It seeks to limit the type of information provided by companies during private briefings of securities analysts and institutional investors.

Two of the four SEC commissioners, Laura Unger and Isaac Hunt, have expressed doubts about the plan and said they don’t know how they’ll vote. Three votes are required for approval. Two commissioners back the plan and there is one vacancy on the SEC.

“It could result in the release of either too little information or too much information that would be meaningless,” Unger said.

Under the plan, companies could release their news in a press release, on their Web site or in materials filed with the SEC. Those that unintentionally release information to select recipients would have up to a day to also provide it to the general public. Corporations that don’t comply with these requirements could face fines.

The National Investor-Relations Institute, a group of corporate executives, has joined the SIA in opposing the rule, calling it unnecessary. The institute cited a recent survey of 225 companies that found 82% already let individual investors in on analyst conference calls.

Comment letters supporting the plan included one from a North Carolina man who founded two small high-tech businesses before entering the priesthood.

“I have personally witnessed the kind of private information-sharing between fast-growing companies and the shark pool of securities analysts,” said Robert Wickizer of High Point, N.C.

Paul Carey, the SEC member other than Levitt who supports the proposal, said he was influenced by its overwhelming support from individuals.