SEC Publishes Blackout, Pro Forma Proposals

October 30, 2002 ( - The US Securities and Exchange Commission (SEC) isn't letting grass grow underneath its feet in proposing a raft of new financial reform rules to follow up on this year's Sarbanes-Oxley Act.

On Wednesday, the agency put out  proposed rules governing “pro-forma” earnings reports as well as proposed investor alerts when companies engage in off-the-books deals.   The SEC also proposed a rule to bar top corporate brass from trading company stock if their employees – stuck in a retirement plan “blackout” – can’t do likewise.

“There’s a serious problem if officers and directors can trade and employees can’t,” SEC Chairman Harvey Pitt said Wednesday. “I definitely have no interest in seeing it again.” Pitt recalled how Enron Corp.   employees were frozen from selling company stock last year while top executives were dumping their own shares.

According to the proposed “pro forma” rules, companies would have to explain how their financial results expressed on a “pro forma” basis differ from calculating them using approved accounting standards. The agency said such results also couldn’t be misleading. “Pro forma” reporting strips out certain costs to enhance company results.

The off-the-books deals rule requires that companies would have to include off-balance-sheet deals in their annual reports if there is a chance they could significantly affect the firm’s financial health. In that case, information would have to be included in the management discussion and analysis of the firm’s performance, according to the rule.   Enron used such deals to help conceal its debt.

The SEC will seek comment on the  proposals for 30 days. Congress ordered final rules be in place by January 26, 2003.

The proposed rules are at