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Top regulator outlines changes for SEC

Published Sep. 10, 2005

The government's top securities regulator said Friday he wants to see more frequent financial reports by companies and faster prosecution of fraud.

Harvey Pitt, chairman of the Securities and Exchange Commission, also expects Wall Street will be able to resolve the problem of stock analysts' conflict of interest to avoid the government stepping in.

In his first speech to a Wall Street audience, Pitt affirmed his commitment to free market principles and eased government regulation while also promising protection of investors.

The government should "provide an environment in which innovation and creativity are rewarded, competition can flourish, and where market participants can compete fiercely but fairly on a level playing field," Pitt said in the speech to members of the Securities Industry Association at its annual meeting.

Ordinary investors "are going to be at the top" of the SEC's agenda, Pitt said later in an interview. "They come first."

He said he plans to continue the popular "town hall meetings" for investors held around the country by his predecessor, Arthur Levitt, who was SEC chairman through most of the Clinton administration.

Pitt called the meetings "very important . . . something that I would like to do."

In a news conference, Pitt spelled out some of his goals: more frequent reporting by corporations to replace the current quarterly system and quicker enforcement action by the SEC against securities law violations rather than years after the alleged wrongdoing.

Financial analysts have been under fire from Washington lawmakers and federal regulators for making rosy stock recommendations even as the market slid last year. Some analysts work for firms that do investment work for, or own stock in, the companies they cover _ while some analysts own the stock themselves. In addition, analysts' compensation, including bonuses, is sometimes tied to the business they bring their firms from companies they cover.

"The public is entitled to have a sense of comfort" that the securities industry is working to resolve potential conflicts, Pitt said. "I believe the industry is very committed to resolving these issues. . . . Either industry will solve the problem or somebody else will."

Several brokerage and investment firms that are members of the Wall Street trade group lost employees in the Sept. 11 attack on the World Trade Center. At the hardest-hit firm, bond trader Cantor Fitzgerald, 657 of its 1,000 or so employees were killed.

The market was shut for four trading days, the longest closure since the 1930s.

"Those we lost leave gaping holes in our lives and in our communities," Pitt said in his speech. "Those of us who were spared must carry on. . . . The terrorists win only if we stop living our lives and imprison ourselves in fear."

Pitt, a prominent securities lawyer who was President Bush's nominee as SEC chairman, was confirmed by the Senate in August and a few weeks later plunged into the crisis that gripped Wall Street, meeting nearly around the clock with securities industry leaders and the heads of Nasdaq and the New York Stock Exchange. The SEC invoked its emergency powers for the first time to ease restrictions on companies' purchases of their own shares, as a way to shore up prices and bring stability.

The crisis showed that contingency planning must be expanded to deal with possible future disruptions, Pitt said Friday, and big securities firms must have adequate backup facilities and records.

William B. Harrison Jr., chief executive of major investment firm J.P. Morgan Chase & Co., said the industry now is faced "with a level of threat and risk beyond anything that we . . . had previously allowed for in our contingency planning."

"We need to build better and more robust backup systems, and we will," Harrison said in a speech to the Wall Street group.