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Levitt says many share blame for scandals

Arthur Levitt, chairman of the U.S. Securities and Exchange Commission (SEC) during the euphoric stock market escalation of the 1990s, told a campus audience Feb. 4 that several entities share responsibility for the recent corporate scandals that deflated investor confidence and hobbled the market.
(Photo by John Sann)

"The blame doesn't just belong with the accountants and lawyers," Levitt told 300 people in Hale Auditorium in the Business School. "It also belongs with the standard setters, rating agencies, regulators, boards of directors and the public."

Brokerage houses gave corporations favorable stock ratings to acquire financial services business and material information before it was available to the investing public, Levitt said. He said the SEC did not police this conflict of interest adequately, although he is pleased that tougher rules governing the disclosure of companies' financial information were implemented on his watch. "I could've done more on this issue than I did," he said.

Meanwhile, Levitt said, auditors skewed the books of corporate clients they relied on for lucrative consulting contracts, senators and congressmen did not support aggressive oversight of industries they counted on for campaign contributions, corporate directors failed to scrutinize their companies' suspect dealings adequately, and investors, enamored with the booming market, did not question grossly inflated share prices.

Levitt is promoting his new book, "Take on the Street," in which he elaborates on these machinations and advises small investors about their rights as shareholders, the market and how to protect their holdings. "A dollar spent on educating investors is far more effective than a dollar spent regulating markets," Levitt said. He urged investors and organizations that represent their interests, such as the AFL-CIO and AARP, to be vigilant and work for stringent shareholder protection regulations. "Ask the questions, find out whether your congressman or senator cares [about stockholder protection], read proxy statements, look for boards that are corrupted," he said.

During a question-and-answer session, Levitt:

• Said the Bush Administration's plan to eliminate taxes on dividends won't jump-start the economy, as the president suggests, but could affect market behavior by encouraging companies to pay dividends and causing investors to take a longer-term view of the market.

• Rejected the notion that certain financial informationsuch as mutual funds' proxy voting recordsshould be withheld because they would overwhelm or confuse small investors.

• Credited President Bush for supporting a large budget increase for SEC enforcement activities in the wake of scandals at Enron and other corporations. "He's put the prestige of the administration behind the commission, and I think you can ask for no more from the administration."

• Expressed optimism about the struggling economy: "Right now we're in a pretty good place, in my opinion, in our economy and our markets," he said, "but the public hasn't realized that yet."

Levitt's visit was sponsored by the Business School's Executive MBA Program and supported by Borders Group and Pantheon Books, his publisher.

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