Home > Stock Analysis

SEC Allowing Too Many Secrets On Wall Street

Posted: Oct 15, 2008 10:28 AM by Eric Fox

Tickers in this Article: SBGI, CTCM, BRK.A, FMD, JPM

The term "confidential treatment order" sounds very mysterious and forbidding. In reality, it is a fairly mundane item relegated to the backwater of the financial world. Unfortunately, sometimes it seems that the government can be inconsistent and overly broad in granting the order.

Get Free Stock Analysis By Email

These orders are granted by the Securities and Exchange Commission (SEC) under Rule 24b-2 of the Securities Exchange Act of 1934. They allow a company to request that any filing with the SEC be treated as confidential and not disclosed to the general public. A company must make a request on paper for such treatment and state the reasons for the request. (For more on this filing, read Policing The Securities Market: An Overview Of The SEC.)

Buffett Denied
There are many reasons that companies request this treatment. Berkshire Hathaway (NYSE:BRK.A) frequently asks for confidential treatment for the 13F forms that institutional money managers must file detailing the holdings of stock and other investments.

The SEC does not always grant such requests. One famous rejection involving Berkshire occurred in 2004, when the government turned down the request saying, "Berkshire's requests do not demonstrate that the failure to grant its requests for confidential treatment would be likely to cause substantial harm to its competitive position."

What's There To Hide?
So what is contained in some of these mysterious requests? Let's take a look.

On Sept. 16, CTC Media (Nasdaq:CTCM), a Russian broadcaster, was granted confidential treatment for an exhibit in its 10-Q filed for the quarter ended July 30. A closer look at the exhibit shows the confidential information to be its "TV Channel Advertising Budget Forecast". The SEC granted confidential treatment for three years for this top-secret information.

The Sinclair Broadcast Group (Nasdaq:SBGI) is another company granted confidential treatment for an exhibit in a 10-Q filing. A close look at the exhibit shows that the confidential information excluded was the amount of money that Sinclair received from The WB Television Network and the UPN Television Network to release it from a contract. Why is this confidential? As an investor, how can I evaluate whether Sinclair received enough consideration for this release?

Sometimes relevant financial information that would help an investor analyze a company is treated as confidential. First Marblehead (NYSE:FMD) was granted such a request for information contained in an exhibit to a 10-K filed on August 28, 2007. The exhibit contains much relevant information for an investor, including the dollar amount of marketing support required by JPMorgan Chase (NYSE:JPM) and details on fees paid to First Marblehead.

Bottom Line
An overly broad and inconsistent application of the confidential treatment order procedure does not benefit investors. I feel the government should err on the side of more disclosure as a general rule.

To dig further into corporate disclosure, read Show And Tell: The Importance Of Transparency.

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

Rate this Article: Your Rating: Overall Rating: Vote Now!

MORE STOCK ANALYSIS