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Isn't loose trading talk illegal? What about news leaks?

By BRUCE MEYERSON
The Associated Press

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And for nearly four years, barely a day has gone by without some anonymous leak in the press about merger talks or other inside information.

Often enough, stocks dart around after these news reports, presenting a fine opportunity to make some money.

By contrast, something much more rare occurred at the Securities and Exchange Commission last week: A company was officially charged with violating the SEC's 4-year-old rule, known as "Reg FD," short for Regulation Fair Disclosure.

The civil suit against Siebel Systems and two of the technology company's top executives marked only the fifth case brought under the regulation. Two of those cases have involved Siebel. The others produced settlements with Raytheon, Secure Computing and Schering-Plough.

With all the market-moving chatter in the news, it sounds somewhat implausible that there have only been five violations of Reg FD in four years. After all, the SEC already has brought hundreds of actions in the two years since the Sarbanes-Oxley Act brought sweeping reforms to securities law.

Then again, Reg FD was not designed with news leaks in mind. The main purpose was to cut back on insider trading by eliminating the preferential treatment traditionally given to Wall Street analysts and well-placed investors — the frequent recipients of private briefings and "guidance" on confidential plans and developments from management and other corporate insiders.

But while the law does not specifically outlaw leaks to the media, it seems readily apparent from the volume of unofficial news reports that there are still plenty of people on the inside who, for a variety of motives, are plenty eager to spill their inside beans to outsiders.

And when people talk stocks often move, generating a quick profit for somebody.

Last week, for example, came news reports that a bidding war for Metro-Goldwyn-Mayer had broken out between Time Warner and Sony. Not surprisingly, none of the companies would comment on the reports. By now, the routine would seem unremarkable, except that stocks jump and drop after the reports, generating a quick profit for those fortunate enough to have their money in the right place at the right time. In MGM's case, the company's shares rose nearly 5 percent on word of the bidding war.

Granted, without all the loose lips and anonymous tips, newspapers might become a very dull read. Whether it's the front page, the sports section or a gossip column, the leak is a time-honored tradition of journalism.
 
The impact is normally limited to consternation and embarrassment. Where the leak involves financial markets, the situation gets trickier.

Though many people willingly proclaim their disdain for the news media, there have been few circumstances beyond military matters where restrictions on press freedoms have been deemed acceptable or preferable by the public and the courts.

In fact, the SEC was very careful in drafting Reg FD to steer clear of imposing any restraints on the media's ability to report inside information. Some would argue that a leak in the press ensures far wider dispersion of sensitive information than the whispered forms of disclosure specifically prohibited by Reg FD.

However, such reasoning assumes that loose-lipped insiders are egalitarian in their motives. Cynical as it sounds, that doesn't seem very likely.

When, in one of the worst kept secrets of the year, several bidders were vying to acquire AT&T Wireless Services, the barrage of anonymous leaks was tantamount to a series of bluffs in a high-stakes game of poker.

With the shares of AT&T Wireless and its varying suitors zipping around from day to day, it's easy to see how this game of poker might also be manipulated for personal gain.

Realistically, the SEC and other regulators cannot hope to catch any but the most egregious acts. Absent a spike, a volume or a sudden price movement with no announcements or media reports, the din of daily market activity provides excellent cover.

Instead, Reg FD can only work if companies make it clear to the rank and file that it's illegal and unethical to selectively disseminate inside information. It sounds simple enough. But no doubt there will be new reports tomorrow.