Federal regulators Thursday proposed a streamlined system for companies to offer securities and file reports, saying the rules need to be updated in the era of faxes and the Internet.
But one official with the Securities and Exchange Commission expressed concern that the proposed changes could leave ordinary investors exposed to fraud.
The commission voted 5 to 0 to open the streamlining proposal to public comment for 90 days. But Commissioner Isaac Hunt, who said he cast his vote reluctantly, was clearly worried that investors may not be adequately protected against fraud by companies abusing more lenient rules.
"If the system's not broke, why do we need to fix it? . . . How are we going to protect against fraud?" he asked Brian Lane, head of the SEC's corporation finance division, at a public meeting before the vote.
Lane said investors would be protected by getting information about companies sooner and that the SEC's ability to detect stock fraud would not be impaired.
The sweeping proposals would enhance the amount of information made available to investors while cutting document costs, simplifying some rules and dropping others.
Of about 75 forms currently used to disclose information to the public, six would be eliminated as part of the streamlining process, saving companies more than $200 million annually.
One of the commission's proposals aims to remove any advantage that cash takeover offers have over takeovers paid in stock. Under current rules, a stock offer must wait for SEC review while cash offers can begin as soon as the paperwork is filed.
Also, big companies would no longer be required to issue lengthy prospectuses full of financial information with their securities offerings. They could use, for example, one-page sheets faxed to potential investors.
Meanwhile, SEC Chairman Arthur Levitt said regulators may ask banks and brokerages to disclose more information about their loans to hedge funds following the recent rescue of Long-Term Capital Management.
Levitt also said in an interview on cable station CNBC that he opposes the introduction of any new rules to regulate hedge funds or financial institutions.
He said he will consult with the securities industry on how best to increase its disclosures about credit provided to hedge funds.
"I believe we need much greater transparency as to what brokerage firm A is lending to this hedge fund, what the aggregate lending may be to the hedge funds," Levitt said.