The Securities and Exchange Commission is putting pressure on mutual funds and investment advisers, as well as public companies, to state clearly how they are tackling the Year 2000 computer problem.
At issue are mounting concerns that computers, not adequately programmed, will interpret the standard two-digit year code 00 as Jan. 1, 1900, instead of Jan. 1, 2000, a flaw that could ultimately hurt investors.
The agency did not mince words in a Jan. 12 staff bulletin, stating its case for Year 2000 disclosure. With that bold move, it may now be pointless for Sen. Robert Bennett (R-Utah) to press ahead with legislation he introduced earlier, requiring extensive disclosure of companies' Year 2000 compliance plans
Nevertheless, Bennett, who nicknamed his legislation Crash, quickly seized upon the SEC's bulletin and praised "[SEC] Chairman Arthur Levitt for his leadership and courage in taking this initiative. The information I will receive from reviewing the results of this new bulletin will be very valuable in determining how to proceed with my own legislation."
The SEC bulletin states that for any company that "has not made an assessment of its Year 2000 issues, or has not determined whether it has material Year 2000 issues, the staff believes that disclosure of this known uncertainty is required.
"The determination as to whether a company's Year 2000 issues should be disclosed should be based on whether the Year 2000 issues are material to a company's business, operations or financial condition, without regard to related countervailing circumstances (such as Year 2000 remediation programs or contingency plans)."
The Year 2000 problem is likely to preoccupy Washington as the new millennium draws near. For investors, the impact of massive Year 2000 computer glitches are almost too frightening to contemplate.
"Just suppose a company runs up against a sudden outlay, perhaps a big balloon expenditure in 2000," explained a government official familiar with the problem. "Instead of earning 4 cents per share, for example, the investor could wind up with a 6 cents per share loss. Investors are relying on companies to know what they are doing."
Bennett, chairman of the Senate Financial Services and Technology Subcommittee, held a series of hearings on the subject last year, and in November introduced the Computer Remediation and Shareholder Protection Act.
"The Year 2000 problem lies at the heart of our economy," said Bennett. Investors, he added, deserve to know companies are responding to the Year 2000 challenge.
Bennett's bill would mandate the SEC to amend its disclosure regulations and require companies to disclose a wealth of information about Year 2000 compliance. Specifically, they would have to provide a detailed description of their progress in Year 2000 remediation; a statement of likely litigation costs and liability outlays associated with the defense of possible lawsuits; disclosure of insurance coverage for computer failures and related lawsuits filed by investors; and a breakdown of contingency plans for computer failure.
This is the second time in recent months that an influential Republican senator has attempted, in effect, to legislate a top-level agency's rule-making authority. Sen. Lauch Faircloth (R-N.C.) blunted the Federal Accounting Standard Board's proposed rules on derivatives, prompting a top SEC official to privately complain that Faircloth should have stayed clear of that controversy.
The SEC official believes Bennett's Year 2000 legislation was out of step with reality. "You usually don't have new rules for every topical problem. The revised bulletin simply tries to make clearer what is already on the books," the official said.
Meanwhile, the Security Industry Association's board of directors supports a proposal to declare Friday, Dec. 31, 1999, a trading holiday in order to complete as much year-end processing as possible before 2000 begins.