The Securities and Exchange Commission (SEC), the U.S. government financial regulator, held a public forum in Washington Friday to discuss ways to restore investor trust in financial markets rocked by recent scandal.
Thousands of investors lost millions of dollars when the Enron energy trading company in Texas collapsed at the beginning of this year. While small investors lost out, top executives at the company sold their shares while Enron's stock price was still high. Not only did Enron go bankrupt but Arthur Andersen, the Houston firm's accountant, is on trial, charged with deliberately destroying documents related to the case. Andersen, one of the world's five biggest accounting firms, has lost dozens of important clients and is not likely to survive in its current form.
The Enron and Andersen scandals have deeply undermined confidence in U.S. financial markets. Harvey Pitt, the embattled head of the Securities and Exchange Commission, says more and better information on the financial condition of companies must be disclosed to the investing public.
Mr. Pitt told the investor's forum that some firms disclose only enough sensitive information to avoid the threat of lawsuits. "Disclosure today is written to avoid liability," he said. "The game is that people tend to put everything they can somewhere in these public filings [to the SEC] so if they get sued they can point to a footnote or something else and say, we told them that and all they had to do was read footnote 386, for example. We want to get to the point where disclosure is made to inform."
Several participants stressed that in today's internet driven global markets information is power. To assure the integrity of markets, information must be disclosed quickly to the public at large.
But Joseph Borg, the chief market regulator in the state of Alabama, said the American investing public can't understand the corporate financial information put before them. There is, he said, a critical need for better financial education in American schools. "If the public can't understand their account statements [from their broker or bank] and they have a fear of that, I'm worried about all this disclosure which is good and the quality needs to get better and the information needs to be out there at the speed of the internet. But perhaps we haven't looked at the basic problem here," he said. "And that is people have not been trained to look at this stuff."
Congress is moving to tighten the supervision of companies and their accounting practices. There is a belief that the U.S. financial services industry has relied too much on self regulation that has proven to be inadequate.