Tom Gardner Challenges SEC

Speaking before a House subcommittee today, Tom Gardner exhorted the SEC and Congress to stand behind six-month-old Regulation FD, which mandates the fair disclosure of important corporate information to all investors. With Wall Street critics still taking pot shots at the rule, investors and lawmakers alike should be mindful of the role reliable information plays in our markets.

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By Dave Marino-Nachison (TMF Braden)
May 17, 2001

Speaking before Congress today, Motley Fool co-Founder Tom Gardner challenged the Securities and Exchange Commission (SEC) to defend regulations requiring public companies to disclose material information to all investors fully and fairly, or risk losing its mandate.

"The SEC is obliged to protect all investors," Gardner said at a hearing of the House subcommittee. "Regardless of who they may know, how much money they have to invest, and how well they might do. Any SEC action that contravenes this duty would naturally force us to ask why American citizens would pay tax money to fund a regulatory agency that might not protect those citizens' best interests."

Gardner, whose full statement can be read in The Motley Fool's press area, was speaking in defense of Regulation FD, the SEC regulation -- now more than six months old -- that met with stiff opposition from Wall Street investment houses. With strong backing from both former SEC Chairman Arthur Levitt and thousands of individual investors, the commission was able to pass the regulation.

But the government has yet to undertake its first enforcement action under FD, and opponents may be attempting to use this downtime -- and a Nasdaq Composite Index that has fallen 30% over the past year --  to continue the debate and echo the criticisms leveled before the regulation's passage.

"They argue that Regulation FD prevents them from sorting through important information that they can then share with the rest of the marketplace," Gardner said. "As an individual investor, I am insulted by the implication that individual investors are not smart enough to flesh out the information they need without the help of an analyst.

"Opponents of Regulation FD will argue that it has increased market volatility," he continued. "However, they won't be able to provide any evidence... Opponents of full disclosure will also argue that Regulation FD has somehow stifled corporate disclosure. Again, there will be no evidence to back up this claim."

Though some companies are wary of FD because the regulation fails to expressly define the sort of "material" information that must be disclosed to avoid falling foul of the rule, many corporations have simply chosen to err on the side of more information, rather than less.

In the end, Gardner noted, opponents of FD are "not fighting Regulation FD based on its fairness to all investors. They must know it is fair... Selective disclosure -- a common practice on Wall Street for years -- is a direct violation of the spirit and law of our public markets. It is a violation that should be of the highest concern to those who oversee the market: the SEC and the U.S. Congress."

Dave Marino-Nachison, report to the principal's office at once! Dave's stock holdings can be viewed online, as can The Motley Fool's disclosure policy.

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