SEC to Crack Down on Improper Stock Leaks

U.S. Securities and Exchange Commission Chairman Arthur Levitt promised Saturday to crack down on companies that leak information to Wall Street analysts before making the same facts known to the public, saying the practice comes dangerously close to being illegal.

Levitt made his remarks at a town hall meeting sponsored by the Boston Globe after being asked about the sharp sell-off in retailer Abercrombie & Fitch Co. stock earlier in the week.

While not referring specifically to the Ohio-based retailer, Levitt noted that some company chief executives, obsessed with pushing their stock prices higher, embarked “on a program of seduction” of the financial analysts who cover their publicly traded companies.

In attempts “to curry special favor with those analysts . . . they may give them a few hints before they announce certain things to the general public,” Levitt said.

“That practice verges on illegality. That practice is something we’re going to focus very closely on over the course of the next six months,” Levitt said. “We’re going to crack down hard where we see abuses developing in that area.”

His remarks came as many companies are reporting quarterly earnings in conference calls involving the analysts and large institutional investors. Frequently, the companies bar reporters and small investors from listening to the calls during which, under current SEC rules, no material information is supposed to be disclosed.

“I’d like to see the press involved in it,” Levitt told reporters after his speech. “I think there’s got to be more light shed on this.”

Investors learned through published reports Thursday that an Abercrombie & Fitch official told a Lazard Freres analyst a week earlier that the retailer’s third quarter sales would be disappointing. The analyst then reportedly told members of Lazard’s sales force.

Levitt asked his agency’s general counsel to examine the possibility of establishing rules on selective disclosure. Saturday, he said he expected those rules to be promulgated within the next six months.