- © 2004, From The Wilderness Publications, www.copvcia.com.
All Rights Reserved. May be reprinted, distributed or posted on an Internet
web site for non-profit purposes only.
-
- [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 of outrage. MCR ]
-
- ____
-
- 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. America 's 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.
-
- WHY I JOINED CARLYLE
-
- 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 board.
-
- 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
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
.
-
- MUTUAL FUNDS SCANDAL
-
- 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"
-
- ELIOT SPITZER
-
- 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 actions.
-
- 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.
-
- JOE 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.
-
- THE MARKETS
-
- We have the New York Stock Exchange scandal of enormous
consequence
-
- 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."
-
- MARTHA STEWART
-
- 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 security transactions."
-
- -- Suzan Mazur's previous coverage of Carlyle appeared
in Sam Smith's Progressive Review ( How Bush Got Bounced From Carlyle Board
- www.prorev.com ) and was subsequently picked up by Salon.com, Democracy
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).
|
