The SEC ‘has been gre­vi­ously hurt’

The Washington Times Weekly - - National - BY DAVID M. DICK­SON

Arthur Le­vitt, the for­mer chair­man of the Se­cu­ri­ties and Ex­change Com­mis­sion, is press­ing a bru­tal at­tack on his for­mer agency and its po­lit­i­cal over­seers, in­clud­ing the White House and Congress.

“The SEC has been griev­ously hurt over the past eight years,” Mr. Le­vitt told ed­i­tors and re­porters of The Wash­ing­ton Times on March 23. “It’s lost its best peo­ple. It’s been de­mor­al­ized. It’s been hu­mil­i­ated [to the] point it is no longer the pride of gov­ern­ment agen­cies.”

Mr. Le­vitt was es­pe­cially crit­i­cal of Congress.

The agency’s con­di­tion “is a func­tion of per­fectly ter­ri­ble over­sight of the SEC on the part of Congress. It’s nei­ther a Demo­cratic nor a Repub­li­can is­sue. It’s a na­tional dis­grace,” he said.

On sev­eral is­sues, from the $64 bil­lion Ponzi scheme mas­ter­minded by Bernard Mad­off to the fail­ure to reg­u­late fi­nan­cial de­riv­a­tives, Mr. Le­vitt ad­mit­ted his own cul­pa­bil­ity dur­ing his ten­ure as SEC chair­man from 1993 to 2001.

“The Mad­off prob­lems” go back to the late 1980s and early 1990s. At least five SEC chair- men, in­clud­ing him­self, were at the helm when Mad­off-re­lated red flags were raised.

Mr. Le­vitt lauded in­vest­ment man­ager Harry Markopo­lis, who tried to alert the SEC as early as 1999 to the Mad­off fi­nan­cial chi­caner y. Mr. Markopo­lis “per­formed an ex­traor­di­nary pub­lic ser­vice” in Novem­ber 2005 when he sent the SEC a 19-page, sin­glespaced memo de­tail­ing the cir­cum­stances that strongly sug­gested Mad­off was op­er­at­ing a Ponzi scheme.

“That let­ter to the com­mis­sion was so poignant, so ob­vi­ous, so de­ter­mi­na­tive that it clearly in­di­cated an abysmal fail­ure of the process of the SEC,” the for­mer chair­man charged. “It’s clear that through the years, the SEC fell far short of where it should have been in terms of not only the Mad­off episode but of their abil­ity to an­tic­i­pate prob­lems and en­force them.”

In par­tic­u­lar, Mr. Le­vitt cited the han­dling of fi­nan­cial de­riv­a­tives, which bil­lion­aire in­vestor War­ren Buf­fett prophet­i­cally de­scribed in 2002 as “fi­nan­cial weapons of mass de­struc­tion.”

Con­firm­ing Mr. Buf­fett’s worst fears, com­plex fi­nan­cial de­riv­a­tives played a ma­jor role in cre­at­ing the cur­rent fi­nan­cial cri­sis. They caused the col­lapse of AIG, the multi­na­tional in­sur­ance com­pany whose re­cent bonuses have ig­nited bi­par­ti­san fury on Capi­tol Hill, in­side the White House and through­out the na­tion.

“The thought of putting any kind of trans­parency [in the de­riv­a­tives mar­ket] was so vig­or­ously op­posed by the Congress that the chances of do­ing so were vir­tu­ally nil,” he said.

“The very mem­bers of Congress that frus­trated in­vestor pro­tec­tion now sound like lat­ter­day Elmer Gantrys, call­ing for reg­u­la­tions so ex­treme, so costly, so puni­tive that they make no sense at all,” he said.

Mr. Le­vitt took di­rect aim at re­cent ef­forts in Congress to in­tim­i­date the in­de­pen­dent Fi­nan­cial Ac­count­ing Stan­dards Board (FASB), which is re­spon­si­ble for set­ting ac­count­ing rules.

“To see key mem­bers of Congress, like Gary Ackerman [New York Demo­crat], threat­en­ing the FASB, call­ing upon them to come up with a new stan­dard within three weeks or threaten- ing to do it them­selves — I find this to be gov­ern­ment at its worst,” Mr. Le­vitt ob­served. “To put the stan­dard-set­ter un­der the boot of hys­ter­i­cal Congress mem­bers re­spond­ing to the pas­sions of their con­stituents, you are vi­o­lat­ing the most fun­da­men­tal tenets of our democ­racy.”

As a re­sult of Congress’ fury, “pri­vate-eq­uity firms, in­vest­ment banks and fi­nan­cial ser­vices firms op­er­ate in an en­vi­ron­ment of ter­ror,” Mr. Le­vitt said. They will be “very, very cau­tious” about par­tic­i­pat­ing in Trea­sury Sec­re­tary Ti­mothy F. Gei­th­ner’s pub­lic-pri­vate part­ner­ships to re­move toxic as­sets from banks’ bal­ance sheets.

“If [Mr. Gei­th­ner’s] pro­gram were un­veiled be­fore the ful­mi­na­tions in Congress, it would have had a bet­ter chance of suc­ceed­ing,” Mr. Le­vitt said.

Al­though Mr. Le­vitt sup­ports Pres­i­dent Obama, he ex­pressed con­cern that the White House hasn’t par tic­u­larly shined in han­dling the cur­rent sit­u­a­tion.

“Cer­tainly, it was the coun­try’s hope that the new ad­min­is­tra­tion would her­ald an era of co­op­er­a­tion and proac­tive think­ing about change,” Mr. Le­vitt said. “It hasn’t quite worked out that way.”


Arthur Le­vitt, for­mer chair­man of the Se­cu­ri­ties and Ex­change Com­mis­sion.

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