ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, October 6, 1996 TAG: 9610040083
SECTION: BUSINESS PAGE: 1 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: ROB WELLS ASSOCIATED PRESS
He's been a broker, headed a Wall Street firm and a major stock exchange, owned an influential Capitol Hill newspaper and dabbled in lobbying. For fun, he takes off a week to raft the rapids of remote Western canyons.
Arthur Levitt Jr. brought this diverse background to the Securities and Exchange Commission three years ago when he was picked by President Clinton as chairman of the government agency best known for busting brokers for insider trading.
At age 65, a vigorous and energetic Levitt shows little sign of boredom with his latest career as a government bureaucrat.
``I find every day more challenging than the last. Of the four or five careers that I've had, none has matched the excitement, the interest and the challenge and the rewards of this place,'' Levitt said in a recent interview. ``The intellectual challenge is enormous.''
What does Levitt find interesting about the SEC - an agency top-heavy with picky accountants and lawyers who can argue incessantly about minutiae of financial statements?
The SEC chief believes he is on a mission: to improve protection of the millions of American families who plowed their savings into the stock market.
``The reason the markets are now strong and resilient is because they have enormous investor confidence,'' Levitt said. ``If you enhance investor interests, you are providing for the enhancement of our markets better than anything you can do.''
The SEC's recent case against the Nasdaq Stock Market, coming at the midway point of Levitt's five-year term, provides a useful benchmark for determining how well the SEC measures up to Levitt's pro-investor pledges.
The Nasdaq case wasn't simple or easy. Large Wall Street firms that trade on the electronic market were accused of a form of price-fixing that went undetected for years, effectively raising the cost of stock trades on the nation's second-largest stock market.
Nasdaq's parent, the National Association of Securities Dealers Inc., was essentially accused of running an old boys' club for failing to police wrongdoing by major dealers.
John Coffee, a Columbia Law School professor and one of the nation's leading securities experts, praises Levitt and the commission for taking on Nasdaq. More than any other initiative, the outcome of the Nasdaq case promises to save investors money by making the market fairer and lowering trading costs, he said.
``You are confronting very powerful, established interest groups and you are dealing with issues which are extremely hard for the public to understand,'' Coffee said. ``They [the SEC and Levitt] don't get the same applause from the public that you get from chasing insider trading.''
Levitt's investor protection campaign is pursued on several levels.
There's a well-honed public relations machine that hosts investor forums in more than a dozen cities across the country, attended by hundreds of people. At these events, Levitt displays his considerable public speaking skills, conveying a sense of understanding to investment novices. Joined by Wall Street trade groups and local regulators, Levitt then fields the public's questions - both simple and sophisticated.
Another investor-friendly initiative has been to urge corporations to write quarterly reports and proxy statements in something that resembles plain English.
Another kind of reform is more difficult for the public to see, such as complex rule-making by the SEC to remedy basic problems in the markets. Under Levitt and former SEC Commissioner Richard Roberts, the SEC pushed to clean up the municipal bond market, where popular tax-free muni bonds are created and traded.
Levitt criticized major Wall Street dealers for making large campaign contributions to state and local officials from whom they sought business, a practice he called ``pay to play.'' The SEC restricted such contributions in a major rule-making initiative in 1994 to eliminate what Levitt called elements of corruption.
The reforms were made possible by Levitt's knowledge and standing in the industry and his personal contacts with heads of the major firms, industry officials said.
While these investor initiatives are substantial, critics say Levitt's actions don't always measure up to his rhetoric.
At issue is Levitt's support for key aspects of a bill to limit shareholder lawsuits alleging securities fraud. After a brutal legislative battle, Congress passed the bill last year over Clinton's veto.
The bill sharply curtails an investor's ability to sue executives and companies for stock fraud. And it broadens immunity for executives against lawsuits if their earnings forecasts or other predictions turned out to be wrong. Consumer groups say this bill would have prevented the victims of the Lincoln Savings scandal from successfully suing bank head Charles Keating for fraud.
``I hardly consider that a great advance for investor protection,'' said William Lerach, a San Diego lawyer who fought the measure. Nearly a year after the battle, Levitt responds to the criticism tensely.
``I don't believe it hurts investor interests. Could it be better? Of course, just as any legislative outcome could be,'' Levitt said. ``We were influential players to ensure a bill that came out was a great deal more moderate than the bill when it first went in.''
This self-styled consumer advocate emerged from an unlikely place, the Wall Street establishment. Levitt worked as a senior brokerage industry executive at Oppenheimer Industries and at the firm that later became Shearson Lehman Brothers. He served as chairman of the American Stock Exchange, and later owned the company that publishes Roll Call, an influential newspaper covering the inner workings of Congress.
A frequent Democratic campaign contributor, Levitt served as co-chairman of the major Clinton-Gore fund-raising dinner in New York in 1992 as well as vice chairman of the host committee for the Democratic National Convention in New York that year.
While keenly aware he needs to remain nonpartisan at the SEC, Levitt admitted to some personal turmoil when the Republicans won control of Congress in 1994, leaving the agency without key Democratic allies in power.
``When the Republicans came in, our congressional relations changed dramatically, causing us to rethink our basic assumptions,'' Levitt said.
Slowly, the SEC and Levitt figured how to work with the new GOP leaders, House Commerce Committee Chairman Thomas Bliley Jr., R-Va., and Rep. Jack Fields, R-Texas, chairman of a commerce subcommittee overseeing the SEC. As the GOP took control, Levitt carefully began devoting more time toward reducing and reforming the agency's regulatory burden on industry, a pet Republican theme. In March, the SEC adopted a report that called for scrapping or modifying one-quarter of the SEC's rules.
``I've operated in the real world I know the costs of redundant regulation,'' Levitt said. ``If we can avoid regulation, I would like to avoid it and have the industry do it themselves.''
But the industry doesn't always hold up its side of the bargain. For example, Levitt appointed a committee of industry experts, including Merrill Lynch & Co., to report on ways to reform broker compensation and reduce conflicts of interest.
Seven months after the report, Merrill Lynch said it would send brokers on free trips to London if they met sales goals for international stocks and bonds. At the time, Merrill said the trips didn't violate the letter or the spirit of the SEC report since the purpose of Merrill's incentives was not to drive sales; the trip primarily provided brokers with a four-day seminar on international investing.
On balance, Levitt is credited with more hits and misses.
``I think he has been the best SEC chairman during my years of service,'' said Rep. Jack Fields, one of Levitt's strongest GOP supporters. ``I think much of the success has come from his own personality and his own charisma and his relationships with major players in financial community.''
LENGTH: Long : 138 lines ILLUSTRATION: PHOTO: (headshot) Levitt. color.by CNB