When the SEC looks the other way

How much information would you want to know about the possible misconduct of a firm in which you may be thinking of buying stock? This is hardly a moot question now in light of what appears to be a subtle but crucial shift in the corporate disclosure standards of the US Securities and Exchange Commission (SEC). Indeed, if we correctly assess the new SEC position on disclosure, the old maxim about ''buyer beware'' may be more fitting than ever.

Not surprisingly, many Wall Streeters - especially sellers of securities - have welcomed the new policy. Consumer groups, on the other hand, view the shift with deep concern.

In a speech delivered recently, John Fedders, who heads up the SEC's securities enforcement division, argued that securities laws do not necessarily require disclosure of all illegal behavior by a firm. Rather, the test would be whether or not the deeds in question violate existing SEC rules and court decisions, and are thus ''economically significant'' regarding the firms' business and financial condition.

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This represents a much narrower view of disclosure than was true for the SEC under Mr. Fedders' predecessor, Stanley Sporkin, when, for instance, the SEC back in the mid-1970s charged firms for failing to disclose corporate bribes made abroad, even though such payoffs were not then illegal.

In his recent speech, Mr. Fedders argued that ''the common interest among all investors is the expectation of a return of investment.'' Hence, he said, SEC actions regarding firms ''must reflect the interests of investors and the marketplace.''

This would seem to be a curious interpretation, whereby investors are better off knowing less, rather than more, about a firm - where knowing about a firm's balance sheet may be dandy, but knowing about its overall character is somehow immaterial.

The SEC should send this interpretation of the investing public's right to know back to the drawing board.

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