by Suzan Mazur
Special to From The Wilderness
FTW's regular readers will
recognize many of the names mentioned by former SEC
Chair Arthur Levitt. They will remember that in 2001,
just months before September 11 th, FTW decried the
purchase of Mexico's largest drug money laundering
bank, Banamex, by Citigroup under then CEO Sandy Weill.
They will remember our
early post-9/11 stories focusing on the Carlyle Group
and its insidious insider connections, as well as the
fact that the bin Laden family were investors, and that
Osama's brother had been attending a Carlyle meeting
just blocks from the White House on that fateful day.
The point is that in the financial world Arthur Levitt
is regarded as the clean, no-nonsense SEC boss. As the
accounting scandals of 2002 destroyed hundreds of
billions of dollars in shareholder equity, much of it in
pension funds, Washington and New York insiders
lamented, "if only Arthur were here." Now that those
scandals have faded from view and contemporary memory
Arthur Levitt, the icon, cynically and disingenuously
discloses his positions on a wide variety of subjects.
We see him now not as a
protector of integrity but as a man who is cut from a
mold similar to that of one of his predecessors at the
SEC, William Casey. The same William Casey who was
Ronald Reagan's CIA director and who masterminded an
explosion of CIA-shepherded drugs into the bloodstreams
of America's children and into Wall Street's stocks,
bonds and bank accounts.
FTW welcomes veteran international journalist Suzan
Mazur to our pages with her elegantly understated sense
previous coverage of Carlyle appeared in Sam Smith's
Progressive Review (How Bush Got Bounced From Carlyle
www.prorev.com) and was
subsequently picked up by
Now! and Pacifica Radio, UPI, Washington Times and the
British press -- Guardian and Telegraph.
Mazur is a
Middle East and South Asia specialist. Her reports have
appeared in the Financial Times, Forbes, Newsday,
Philadelphia Inquirer, and on PBS, CBC and MBC. She has
been a guest on McLaughlin, Charlie Rose, and Fox
television (including O'Reilly, who pulled their
one-on-one segment on polygamy before broadcast).
February 20, 2004
1800 PST ( FTW )
-- Former SEC chair Arthur
"squeaky clean" Levitt in recent "unprepared" comments to an
investors board meeting in Pasadena defended his decision to join
The Carlyle Group as senior adviser after leaving the SEC in 2001,
saying further that he'd been a consultant to Carlyle before
President Clinton appointed him securities chief in 1993.
longest serving SEC chair also admitted he was "taken by total and
absolute surprise" by what he termed the "greatest threat to our
markets" - the mutual funds scandal. He blamed his misplaced
"prepared" speech on a possible Republican saboteur, threw mud at
Joe Lieberman and Congress, did not spare Martha Stewart, and
anointed New York Attorney General Eliot Spitzer to sainthood.
Levitt also confessed that he first got his business feet wet
selling cattle for five years in Kansas (proclaiming himself an
animal rights champion now) and after that he opened a brokerage
business with former Citicorp CEO Sandy Weill. Since leaving the
SEC, Levitt has also joined the board of U.S. Investigations
Services (USIS) which gathers data on all federal job applicants,
maintains security clearance files on all civilian employees and as
a private company operates deep underground in a U.S. government
facility near Boyers, Pennsylvania as a part of what has come to be
known as "The Shadow Government."
Excerpts of Levitt's off-the-cuff comments and responses to
questions from the board of the Los Angeles County Retirement
Association (which has $93 million in funds with Carlyle, an
investment many at LACERA oppose for ethical reasons) follow.
The Carlyle Group is a private equity group. It's a group that I
was a consultant for before I went to Washington. I knew David
Rubenstein, who I understand has been out here to talk to this
board. And I knew Frank Carlucci because he served on the board
of the American Stock Exchange with me. And I liked them. And I
trusted them. When I went to Washington, I resigned from the
They've become the largest private equity group in the world
today managing some $14 billion of funds. They had been accused
in the press of having funds that were provided by Middle
Eastern interests. And they were accused of investing in
companies which were defense companies that provided various
kinds of weapons.
And indeed a minuscule part of their $14 billion -- less that
$100 million -- came from the Middle East . And they have made a
number of very successful investments in the defense industry.
But much more in real estate. Much more in agriculture. Much
more in financial services than in the defense business.
To the best of my knowledge they have never been sued. To the
best of my knowledge they have never been the subject of any SEC
(Securities and Exchange Commission) investigation or action [Carlyle purchases of privately-held
companies are not subject to SEC regulation.]
I am, along with James Baker -- the former Secretary of State,
and former Prime Minister [John] Major of the UK [George H.W.
Bush has resigned from Carlyle since September 11, 2001 ], an
advisor to Carlyle. And I'm proud of that association and have
no reason to feel embarrassed by it. And their results have been
-- I think you would be told -- their results are probably the
highest of any private equity firm in America .
And probably the greatest damage to our markets in my judgment
-- the greatest threat to our markets in recent years has been
the scandal that appeared in the mutual fund market. I was taken
by total surprise. Total and absolute surprise. From my years at
the SEC, I felt that mutual funds of America were really a part
of a system that was fairly regulated and really cared for
investor interest. I'm not sure when the problems developed
[emphasis added] . But I suspect it was part of the overall hype
of the runaway market that caused so many of these aberrations
The average fee paid to a director of a mutual fund in America
today is $242,000. How willing is that director to challenge the
people who put him or her on the board? Well, I think what's
changed in the boardroom is not a rule or a regulation but it's
been humiliation and embarrassment. Nobody wants to see
themselves appear on the business page of the Wall Street
Journal or the Los Angeles Times
You can look at the statements that are going to come out and --
believe me -- the SEC is coming out with new disclosure
statements on mutual funds.
The SEC brought on average 400 cases a year during my eight
years there -- which is a fraction of a number of instances of
corporate fraud in America . The SEC has no criminal power. They
have to work with the Justice Department to bring criminal
actions. And most US Attorneys are too preoccupied with drug
cases or physical violence to concern themselves with securities
fraud. But more and more of them have come to an understanding
of what securities fraud is. And that's why I said before that
the enforcement efforts of the SEC must be supplemented by
enforcement actions of the stock exchanges and private rights of
The SEC was severely strapped for resources during my eight
years. Congress consistently cut back on our budget requests.
Now they have twice the budget they had before and that money is
going into enforcement.
I think that Eliot Spitzer has performed a vast public service.
He has constructively used a little-used law called the Martin
Act in New York State to bring cases that the SEC would have
taken several years to bring, because in several respects the
federal laws were not as easy to work with as the New York State
law was with the Martin Act. And for that reason I feel that the
Eliot Spitzers of this country should be allowed to work with
federal regulators in order to bring actions that may have
escaped me. . .
And I think the future protection of investors you quite
correctly point out is very largely a function of enforcement.
Also a function of private rights of action. There's a
Congressman who comes from Orange County named Chris Cox who's
trying very hard to diminish the ability of individuals to sue.
I don't support his view of the
world in that regard.
LIEBERMAN, CONGRESS & EXECUTIVE COMPENSATION ISSUE
Stock options are related to a much larger issue in America --
the issue of executive compensation. Rather than paying
executives obscenely high salaries, which somehow or other we're
doing anyway, somehow the idea of giving out stock options
became the vogue in the period of the 90s when new high-tech
companies were formed. Lots and lots of stock options were
granted. Every option that is granted diminishes the value of
the stock, the common stock that others may own. And we waged a
strong campaign by the independent accounting standard board to
account for those stock options appropriately.
That was fought tooth and nail by the Congress. Senator
Lieberman running for the Democratic nomination for President of
the United States led a coalition in the Senate which voted with
only two exceptions to try to overrule the independent standard
setter on this issue.
Anytime we had a question, a
rulemaking that was intended to protect investors, I would
receive a call from Congress to appear before a Congressional
committee and justify that action.
We have the New York Stock Exchange scandal of enormous
The SEC brought an action against NASDAQ while I was there.
Brought an action against the New York Stock Exchange. The
Philadelphia. The Chicago. Because self regulation works up to a
point. But every few years the oversight process has got to work
and actions have to be brought holding them to task.
Now what I mean by that is. The New York Stock Exchange or the
NASDAQ market place or the Pacific Stock Exchange would say to
you that their principal concern is the investor. That's
poppycock. That's nonsense. It's laughable. Their principal
concern is their members' interests. And after that comes the
firms. The Merrill Lynchs. The Citicorps.
That bring them business. And after
that -- far after that -- come investors' interests.
My feelings about this are -- if Martha Stewart lied, and I
believe she did, she should be treated no differently than
anybody else who violates our securities laws. She shouldn't be
punished for it because she's Martha Stewart. Nor should she be
given a pass. My own feeling was that if she had settled this
case, she probably would not have gone to jail. If a jury
convicts her, I think she probably will go to jail. And I think
it's a question of -- do they have the evidence not that she
traded on inside information. But that she lied about it.
And I question there always is a tendency for prosecutors to not
give a pass to a high profile kind of case because that's the
way they send a message to the rest of America. They don't have
the resources to look at every transaction. And only by getting
public attention to a practice that is pretty general are they
able to drive home the importance of not lying about your