Levitt Urges More Specifics in Firms’ Forecasts

Securities and Exchange Commission Chairman Arthur Levitt on Thursday criticized corporations for their disclosure of financial forecasts in a way that favors Wall Street analysts and leaves investors with boilerplate.

Levitt said a year-old law that seeks to encourage companies to publicize their expectations is not working because many corporate disclosures are “over-lawyered.”

Levitt didn’t cite any company or threaten any specific regulatory response, but he did provide specific guidance to companies for the first time and used his position as the top U.S. securities cop to jawbone for change. Levitt made his comments before about 500 securities lawyers and academics at a Securities Regulation Institute meeting in San Diego. “Analysts typically get this information in conference calls with senior management; other investors rarely have such an opportunity,” he said.

Levitt said companies explain such behavior by citing a fear of liability for this kind of “soft” information, or nonfactual forecasts.

The new law seeks to promote more disclosure by offering a so-called safe harbor from litigation to companies making forecasts about their finances. This protection, which seeks to curb shareholder fraud lawsuits against companies whose stock falls, applies only if forecasts are accompanied by risk factors that could undercut these predictions.

An informal SEC staff review late last year found that fewer than 10% of 150 corporate filings studied present risks specifically enough to comply with the letter and spirit of the law.