SEC May Alter Disclosure Rule on Stock Price Run-Ups

NEW YORK —  The Securities and Exchange Commission is already reconsidering a controversial 6-month-old rule on what companies must say in explaining rapid run-ups in the value of their stocks.

Meeting with reporters here Thursday, Gary Lynch, the SEC’s enforcement director, acknowledged that the agency is “talking about” changes to the rule, which is a highly sensitive matter for both companies and investors.

Companies fear that early disclosure of merger talks or other important negotiations may upset their plans. Investors, on the other hand, want full information as quickly as possible lest they be caught unaware when a stock soars or plummets.

The commission said in a report last July that companies can generally respond with a “no comment” when asked to explain such run-ups. Companies can also provide full details, of course, the commission said, but they cannot falsely deny that an important development is under way.

The guidelines came in a report that chided officials of Carnation Co. for misleading investors in 1984 by denying that merger talks were under way with Nestle S.A. The Swiss conglomerate finally purchased Carnation in a takeover that sharply drove up the price of Carnation’s stock.

The SEC’s ruling has been roundly criticized by Wall Street professionals, who charged that it would shield companies that wished to keep investors in the dark.

On Thursday, Lynch said officials of the agency are “concerned” about a rash of sudden stock increases that have gone unexplained. “I’m concerned, and a number of people at the agency are concerned, about these movements in the market,” he said.

Asked if officials have had second thoughts about the rule, he said, “We’re thinking about it.” He declined to elaborate further on the agency’s plans.

Richard Torrenzano, a vice president and spokesman for the New York Stock Exchange, said companies have given a “no comment” to the exchange on 12 occasions since July in response to questions about sharp rises in stock prices.

Most recently, RCA offered the “no comment” response Wednesday when asked to explain activity that drove RCA stock up nearly two points in trading early in the day. The stock fell back when United Technologies denied rumors that it would try to outbid General Electric for the communications and entertainment firm.

In December, RCA also said “no comment” when asked about takeover rumors that drove its stock up $10.375 just before the two companies disclosed General Electric’s purchase plans, Torrenzano noted.

The exchange has taken no position on the agency’s rule, he said, “but we’re in favor of full and prompt disclosure.”

One industry official, who asked to remain unidentified, was blunt. “They (the SEC) goofed, and now they know it,” the official said.