SEC Seeks More Y2K Disclosure

(August 4, 1998)  SEC Chairman Arthur Levitt sent a letter to over 9,000 executives at publicly traded companies urging them to disclose more information about their Year 2000 conversion preparedness.  Many companies have been reluctant to do so.  Congress has pressured the SEC to require further disclosure.

The Securities and Exchange Commission letter stated that:

"The unprecedented growth of our capital markets during the past decade is largely due to the confidence investors have in public companies like yours. Because the lack of information regarding your preparations for the Year 2000 could seriously undermine the confidence investors place in your company, it is imperative that you provide thorough, meaningful disclosure on this topic."

The SEC also published a lengthy set of guidelines for public companies, investment advisers, investment companies, and municipal securities issuers regarding their disclosure obligations about Year 2000 issues.  The release "provides guidance to public companies so they can determine whether their Year 2000 issues are known material events, trends, or uncertainties that should be disclosed ..."  It also contains "guidance regarding specific matters for companies to address in their MD&A Year 2000 disclosure" and "the need for companies to consider the Year 2000 issue in connection with other rules and regulations and when they prepare financial statements."

The SEC is under Congressional pressure to require companies to disclose Y2K information.  Sen. Bob Bennett (R-UT), who is Chairman of the Senate Special Committee on the Year 2000 Technology Problem, introduced legislation late last year (S 1518) that would requires publicly traded companies to make specific Y2K disclosures in their IPOs and quarterly reports.  This presented the SEC with the alternative of proceeding on its own, or doing so under legislative mandate.

Many companies have not made forward looking statements regarding this subject for fear that they might serve as the basis for future lawsuits against them.

President Clinton advocated "good Samaritan legislation" in a speech on July 14.  He stated that it would "guarantee that businesses which share information about their readiness with the public or with each other, and do it honestly and carefully, cannot be held liable for the exchange of that information if it turns out to be inaccurate."  Last Friday, Sen. Bennett's Y2K committee heard from executives of telecommunications companies who advocated passage of the President's, or similar, proposals.

Meanwhile, Rep. David Dreier (R-CA) and Rep. Chris Cox (R-CA) introduced a bill in the House.   HR 4240 would limit the liability of companies that make certain disclosures to their customers.

The SEC letters were sent out July 29, but the text of the letters was not publicly released by the SEC until Monday, August 3.

Letter from SEC Chairman Arthur Levitt to Corporate Executives.
Re: Year 2000 Problem Disclosures.
Date: July 29, 1998.
Source: SEC.

July 29, 1998

Dear __________:

I would like to focus your attention on one of the most pressing disclosure issues we face today – Year 2000 readiness. As you well know, unless modifications are made, at midnight on December 31, 1999, the vast majority of computer systems may not be able to distinguish the year 2000 from the year 1900. Many experts fear that this programming flaw could debilitate computer systems world wide.

Today, the Commission itself has spoken on this critical issue. We have just issued an interpretive release that describes, in detail, the type of information we expect to see in companies' periodic reports regarding their Year 2000 readiness. Time is short. I urge you to consult this release when preparing your periodic reports, beginning with your very next quarter. You can find this release on the SEC website at www.sec.gov or call (202) 942-7111 for a paper copy.

The unprecedented growth of our capital markets during the past decade is largely due to the confidence investors have in public companies like yours. Because the lack of information regarding your preparations for the Year 2000 could seriously undermine the confidence investors place in your company, it is imperative that you provide thorough, meaningful disclosure on this topic.

I look forward to reading about your company's Year 2000 readiness in the next periodic report you file with us.

Sincerely,

Arthur Levitt