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SEC Sets Rules on Disclosures

October 31, 2002|From Reuters

Securities regulators, moving to implement regulations ordered by Congress after a wave of business scandals, Wednesday proposed rules to crack down on pro forma profit reports and off-balance-sheet dealings.

The Securities and Exchange Commission, voting 5 to 0 on all measures, also sent out for public comment a proposed rule to bar executives from selling company stock when employees are unable to do so because of pension plan "blackout periods."

But the agency postponed until Wednesday action on a proposed rule to require corporate lawyers to blow the whistle on securities lawbreaking found on the job. SEC Chairman Harvey L. Pitt said his staff needed more time to write the rule.

The SEC is working to effect provisions of the Sarbanes- Oxley Act approved in July by Congress in reaction to this year's torrent of corporate and accounting scandals.

The pro forma reporting rule attacks the problem of companies reporting profit figures that ignore various costs, departing from nationally recognized standards known as generally accepted accounting principles, or GAAP.

Under the proposed rule, companies no longer could report financial results on a pro forma basis without explaining how they differed from GAAP-based results.

The pro forma rule also would result in companies having to file news releases and announcements that contain "material" financial information to the SEC on the existing 8K form, exposing companies to greater legal liability on their public pronouncements.

The off-balance-sheet rule would require companies to talk about any off-balance-sheet financial obligations, and the risks that they could pose, in the "Management's Discussion and Analysis" section of filings made to the commission.

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