SEC to Weigh Rules Requiring Analysts to Certify Research

The Securities and Exchange Commission will soon consider rules requiring stock analysts to certify that their research reports reflect their views, SEC Chairman Harvey Pitt said.

“I think if we can get a rule of that nature, we can have a very dramatic effect on the standard of honesty in analyst reports,” Pitt said in an interview with public television’s “Nightly Business Report.”

Such a rule would make analysts personally liable for fraud if their reports didn’t reflect their views, he said. The SEC approved rules this month that would forbid analysts from reporting to investment bankers and from trading against their recommendations.

The SEC might consider a second round of rule making if the agency’s investigation of Wall Street analysts yields evidence calling for additional standards, Pitt said.

Pitt opened an inquiry into a dozen Wall Street firms last month after New York Atty. Gen. Eliot Spitzer started investigating Merrill Lynch & Co. and turned up evidence that analysts were disparaging stocks they were touting. Merrill settled the New York probe this week.

It’s “quite likely” the SEC will consider a second set of analyst rules, Mary Schapiro, president of the National Assn. of Securities Dealers’ regulatory arm, has said. The NASD, which is joining the SEC in its investigation, is likely to bring some enforcement cases against analysts by the end of the year, she said.

The SEC rules approved this month also would prohibit analysts from being paid out of specific banking deals. Analysts would be prohibited from trading against their recommendations, and they and their firms would be required to disclose whether they own stocks being reviewed.