SEC chief says crackdown helped lure back investors

WASHINGTON -- The past year's crackdown on corporate corruption has helped lure investors back to the stock market, but some companies still haven't grasped the importance of reform, the chairman of the Securities and Exchange Commission said Tuesday.

In an interview with The Associated Press, William Donaldson also said new rules may be needed to ensure companies put enough money into their pension funds for employees.

Some corporations have made overly optimistic projections of their future earnings, allowing them to boost short-term profits with money that otherwise should have gone to shore up pension funds. Later, some companies have been forced to scramble for money to restore to the pension funds.

The accounting "is murky and needs a lot of attention," Donaldson said, noting that the SEC and the Labor Department are looking into the issue.

One-year anniversary

Donaldson spoke a day before the one-year anniversary of sweeping anti-fraud legislation -- enacted at the height of the scandals at Enron, WorldCom and other companies -- that wiped out billions in investors' savings. The legislation imposed new criminal penalties, changed how companies operate and brought the accounting industry under stricter supervision.

The market's resurgence in recent months has been aided by investors regaining confidence from the new corporate accountability law, Donaldson suggested.

"Clearly investors have gotten back into the market because they like the market," he said. "Clearly a part of that is a feeling that the change is under way. ... People recognize that we have a rigorous program under way."

At the same time, Donaldson said, some companies still "haven't gotten the message" when it comes to lavishing pay packages and stock options on executives, incentives that encourage short-term leaps in a company's stock price often at the expense of a company's long-term financial health. He did not single out any companies but said it was important for boards of directors to set longer-term goals for their chief executives and avoid slavishly trying to meet Wall Street's quarterly profit targets.

Donaldson, a Wall Street veteran and former chairman of the New York Stock Exchange, has been the government's top securities regulator for about six months.

Donaldson announced the first major initiative of his tenure two weeks ago: a proposal allowing shareholders to nominate company directors after demonstrating that the company hadn't been responsive to requests by large groups of investors for changes in company policies.

On other topics, Donaldson said:

Mutual fund companies should be required to make fuller disclosures to investors of fees, which are too complicated for many consumers to understand. Investors also should be told if their brokers have been given special inducements to sell particular mutual funds, he said.

Companies have to develop a new "moral DNA" -- "a culture that will last beyond the current management, that will be built into the bones of the company."

In addition to the erosion of business ethics during the market boom of the 1990s and the failure of accountants and other "gatekeepers" to exercise oversight, "also partially to blame are investors themselves, those investors who considered it to be a poker game."