Thursday, October 23, 1997

SEC launches push on year 2000 disclosures

By PAUL BECKETT / Dow Jones News Service

WASHINGTON (Dow Jones News) -- The Securities and Exchange Commission began an initiative Wednesday to ensure that companies and mutual funds keep investors fully informed about the conversion of their computer systems to handle the new millennium.

As it reviews all new securities offering registrations and merger transactions, the SEC's division of corporation finance will now look for disclosure about significant costs companies may face as a result of adapting their computers for the year 2000, said Brian Lane, the division's director.

Companies that don't address the issue directly could face delays in registration approvals to answer commission inquiries about the issue.

The division will also begin reviewing selected corporate annual report filings in industries, such as financial services, that are perceived to be particularly vulnerable to computer problems associated with the change to the year 2000, Lane said in testimony before a U.S. Senate Banking subcommittee.

The reviews will begin with disclosures in annual report filings for the fiscal year ending December 1997.

"Companies that fail to take this requirement seriously and do not provide adequate disclosure in their commission filings run the risk of commission enforcement action," Lane said.

Companies may face problems in 2000 because generations of computer systems have been designed to function based on dates that begin with 19. Some estimates put the costs and potential legal liabilities associated with adapting computer systems nationwide at hundreds of billions of dollars.

The SEC's disclosure rules require that companies tell investors about material risks they face and Lane suggested that even companies that don't see their year 2000 risk as material should still tell investors where they stand.

On another front, Lane said the SEC's investment management division will review all mutual fund prospectuses regarding year 2000 issues and may refer areas of concern to the SEC's Office of Compliance, Inspections and Examinations.

For instance, "funds may need to disclose the effect that the year 2000 problem would have on the adviser's ability to provide the services described in (a fund's) registration statement," Lane said.

Because mutual funds offer their securities for sale continuously, they are required to update their prospectuses regularly.

Though it is placing a new emphasis on disclosure about Year 2000 risks, Lane said the commission did not see the need for legislation that required companies to disclose information about the costs and potential liabilities they face as some in Congress have suggested.

"Current laws and regulations are flexible enough to cover the reporting obligation of public companies, funds, and investment advisers regarding any material impact of year 2000 problems," Lane said. He added that commission may reconsider its position depending on the results of the reviews.