23 June 2000
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549-0609
Re: Proposed SEC Selective Disclosure Regulations, File No. S7-31-99
Dear Mr. Katz:
The State of Wisconsin Investment Board ("SWIB") is pleased to submit this comment letter on the above-referenced release. SWIB manages the ninth largest public pension fund in the U.S. and currently invests more than $70 billion in retirement fund and government assets.
As a large institutional investor, SWIB has served as lead plaintiff in several securities class action lawsuits under the Private Securities Litigation Reform Act ("PSLRA"). One of Congress' main objectives in enacting the PSLRA was to encourage institutional investors to take a greater role in class action securities litigation. In a brief submitted last year to support the lead plaintiff application of the Florida State Board of Administration fund in the Telxon case, the U.S. Department of Labor ("DOL") stated "the Secretary believes that a fiduciary has an affirmative duty to determine whether it would be in the interest of the plan participants to [become lead plaintiff]."
SWIB's experience in the lawsuits where it served as lead plaintiff has been that class recoveries were increased over customary levels in similar lawsuits, class legal fees were cut by about half and corporate governance changes were achieved. Yet, despite these benefits, many private and public institutional shareholders have expressed reluctance to serve as lead plaintiffs out of fear of jeopardizing their relationship with the issuer. Such shareholder concerns about being subjected to retaliation for assertion of shareholder rights under the PSLRA is undermining achievement of Congress' desire to get large investors to serve as lead plaintiffs.
Potential for selective disclosure practices forces fiduciaries to balance their duty to maximize earnings (using access to full and timely information) with their duty, as expressed by the DOL, to review and act appropriately to seek a remedy for damages caused by fraudulent activities. SWIB believes the Division's proposed rule could be drafted to favorably impact this balancing of duties.
SWIB encourages the Commission to consider protection of shareholders from retaliatory use of selective disclosure in its revision of Regulation FD. For example, to the extent an issuer denies access or reduces an established practice of providing lawful disclosures to a shareholder (e.g., stops including a shareholder in conference calls) due to that shareholder's assertion of any proper right under state or federal law, the issuer could be made subject to SEC enforcement or a private civil action remedy.
We commend the Division's efforts to assure full and timely access to information in this fast-paced securities market. We hope our comments will assist the Division as it considers further action on selective disclosure issues.
Feel free to contact me if SWIB can be of further assistance.
Keith L. Johnson
Chief Legal Counsel
cc: David B. H. Martin, Director, Corporate Finance Division, SEC
Richard Walker, Director, Enforcement Division, SEC
Luis de la Torre, Attorney, Office of General Counsel, SEC