Brokerages Plead for Help in Policing Abuses
Expressing outrage and dismay at the expanding insider trading scandal, representatives of four top securities firms told Congress on Tuesday that Wall Street needs government help to police a problem that they said threatens the credibility of financial markets.
The executives also warned that the global expansion of capital markets has so complicated the securities industry that they have been unable to frame a comprehensive working definition of insider trading, even for the guidance of their own employees.
The four testified at the first of a series of hearings by the Senate Banking subcommittee on securities on proposals for expanded regulation of the industry by the Securities and Exchange Commission, which has taken the lead in probing financial market abuses but is accused by some Democrats of insufficient regulatory zeal.
Committee Chairman Donald W. Riegle Jr. (D-Mich.), supported by other committee Democrats including William Proxmire of Wisconsin, Jim Sasser of Tennessee and Richard C. Shelby of Alabama, spoke in favor of broader regulation.
Republicans Alfonse M. D’Amato of New York and William L. Armstrong of Colorado urged steps to allay investor fears that speculators with inside knowledge are manipulating the market.
The securities executives generally agreed with both propositions.
“The insidious effect of insider trading abuses,” said Paine Webber Chairman Donald B. Marron, “is that they begin to erode (market) confidence by causing ordinary investors to believe that the markets are not fair and that the values they read in the papers may not reflect the true values of the securities they are holding or want to buy or sell.”
He urged Congress to strengthen the SEC’s ability to oversee markets, to clarify the definition of insider trading abuses and to tighten and streamline rules governing mergers and takeovers so that essential trading information reaches the public domain as quickly as possible.
“Congress’ assistance in this endeavor is essential,” Marron said. “I reluctantly conclude that Wall Street cannot solve this problem alone.”
Alvin V. Shoemaker, chairman of First Boston Corp., denounced the most flagrant recent insider cases, involving such figures as Ivan F. Boesky and Dennis B. Levine, as representing a “criminal element in our industry.”
Shoemaker, Marron and their fellow witnesses--Raymond A. Mason, chairman of Legg, Mason, Wood, Walker; and Robert P. Rittereiser, president of E. F. Hutton--urged tightening securities laws that require investor groups acquiring 5% or more of a company’s stock to report that fact to the SEC within 10 days.
Marron proposed cutting the reporting time to two days or less, an approach endorsed on the committee by Sasser and Proxmire.
But none of the securities executives were able to come up with a comprehensive definition that would cover all the gray areas of insider trading and distinguish shady practices from legitimate use of privileged information.
