This is a speech given in 1998 by Arthur Levitt, the SEC Commissioner. He obviously had a sense of the nature of man and money, but in looking at corporate reporting today, he might as well have been focusing on an ice cube floating in the North Atlantic Sea in 1912.
“Managing may be giving way to manipulating; integrity may be losing out to illusion.”
REMARKS BY CHAIRMAN ARTHUR LEVITT
SECURITIES AND EXCHANGE COMMISSION
THE “NUMBERS GAME”
NYU CENTER FOR LAW AND BUSINESS,
NEW YORK, N.Y.
SEPTEMBER 28, 1998
Thank you very much. Dean Daly, Dean Sexton and to everyone gathered this evening, thank you for welcoming me tonight. I am honored to be here on such an auspicious evening for both NYU and Bill Allen.
The creation of the Center for Law and Business recognizes an important truth: we cannot continue to view the worlds of business and law as parallel but separate universes. And NYU could not have selected a more qualified or thoughtful individual than Bill as its first director. His leadership of the Delaware Court of Chancery — acknowledged as the nation’s most influential arbiter of corporate law — confirmed his reputation as a great thinker who effortlessly bridges the worlds of law and business. I’ve heard from friends on Wall Street that it’s a far less stressful experience to hear Bill lecture in front of a classroom than from his former seat on the bench.
Seven months ago, I expressed concerns about selective disclosure. Through conference calls or embargoed press releases, analysts and institutional investors often hear about material news before it is made public. In the interval, there is a great deal of unusual trading. The practice had been going on for a long time. And, while everyone was aware of it, and most were extremely uncomfortable with it, few spoke out. As the investor’s advocate, the SEC did and we will continue to do so.
Well, today, I’d like to talk to you about another widespread, but too little-challenged custom: earnings management. This process has evolved over the years into what can best be characterized as a game among market participants. A game that, if not addressed soon, will have adverse consequences for America’s financial reporting system. A game that runs counter to the very principles behind our market’s strength and success.
Read the full Remarks here.
