Risk & Compliance

Reports of the SEC’s Death Are Greatly Exaggerated

Former chief Levitt says Congress will stand up — on both sides of the aisle — to keep the commission going. He backs Cox in Bear Stearns controversy.
Roy HarrisJune 25, 2008

Some suggest that the Securities and Exchange Commission is hurtling toward extinction. On Monday, for example, a Wall Street Journal front-page analysis of Chairman Christopher Cox’s “low key leadership” — especially during the Bear Stearns crisis — described Treasury Secretary Henry Paulson’s recent blueprint for regulatory reform
as containing a proposal “to eliminate the SEC and shift responsibility for Wall Street to the Fed.”

Not likely, says former SEC Commissioner Arthur Levitt, now a senior advisor in New York for The Carlyle Group. In a telephone interview with CFO.com, Levitt noted that there have been a range of interpretations of the Treasury secretary’s comments about the future of the SEC. “Rest assured. Congress will have the last word, and the SEC is not likely to go away,” said Levitt, who served as commissioner from July 1993 to Februrary 2001.

Asked whether partisan interests on Capitol Hill might bolster the SEC — created in President Franklin Roosevelt’s term in the Depression years after the 1929 stock-market crash, and first headed by Joseph P. Kennedy — Levitt said support for the commission would not be the purview of one party or another. “Republicans or Democrats, they want to have jurisdiction over the agency,” and the work it does to regulate companies. “They want that because, by playing off the interests of the business community over the SEC or any government agency, they have a wonderful fund-raising mechanism.”

For Levitt’s part, he doesn’t see the Treasury Department’s proposals for reform of the regulators’ roles as intended to threaten the continuation of the SEC. “Secretary Paulson’s blueprint was so broad and so general that you could interpret it in any one of a number of ways,” the former commissioner told CFO.com.

As for the criticisms of Christopher Cox as having been out-of-touch during the Bear Stearns collapse and subsequent bailout, “Chairman Cox probably got a bum rap,” Levitt said. The current commissioner was criticized in the Journal article for having not participated in the crucial conference call at which the bailout was discussed with Paulson and others. Other SEC officials were on the line instead. Otherwise, Cox played a “peripheral” role in the Bear negotiations, and soon thereafter left Washington for a family trip, according to the report.

“I just know from having gone through a number of crises myself [at the SEC] that it is conceivable that you will be so remote from a situation that you’re not the one on the phone,” Levitt said, noting that the SEC’s role is more preventative than corrective in the aftermath of a problem. “Insofar as market events are concerned,” he said, “there’s not a lot they can do once the crisis hits.”

Levitt does not criticize Paulson for creating an environment for regulatory reforms to be considered within government. “I think he’s doing a public service, in that very few people understand market structure,” Levitt said. For years to come, the role of the SEC in the regulatory system will be the subject of discussions, with regulators themselves taking part in the analysis of various alternatives. “If Paulson didn’t do this,” Levitt said, “it would still be a football, but for others to debate.”

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