Outgoing SEC Chief Proud of Little Guys’ Gains
Arthur Levitt, the longest-serving Securities and Exchange Commission chief ever, plans to step down this week as the nation’s top securities regulator.
Appointed in 1993 by Bill Clinton, Levitt will make way for President Bush’s choice to run the SEC. Besides, having turned 70 last weekend, Levitt figures “it’s about time to start looking around.”
Levitt recently discussed the future of investing and the securities markets with Times staff writer Kathy M. Kristof.
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Question: You’ve been at the SEC for more than seven years, and have undertaken many initiatives during that time--from requiring new and improved disclosure from mutual funds to cracking down on conflicts of interest within the accounting industry. What do you consider your greatest achievement?
Answer: There isn’t one thing. The broad description would be empowering individual investors to become the most important force in U.S. markets. We did that through enforcement actions against the National Assn. of Securities Dealers for collusive practices, which in and of themselves had cost individual investors billions of dollars a year; by the introduction of plain English in prospectuses so that individual investors would understand for the first time what they are buying; and through Regulation Fair Disclosure, which gave individual investors access to the same information as institutional investors and analysts.
Q: Where do you see the biggest risks for individual investors in the future?
A: I think the biggest risks to investors [are] probably within the market structure itself. For instance, will our markets be able to adapt to a globalized electronic marketplace? Will individual investors be able to get prices [in globalized trading] that are as good as the prices given to institutions? Will they get adequate disclosure?
How we integrate international markets into a system with very different kinds of regulation without denigrating the standards that many American companies and American markets must live by is a very real problem. There are many cultures in various parts of the world that don’t require full disclosure and yet more and more Americans are investing in those markets. We have to create international standards that provide protections for U.S. investors when they buy international companies.
Q: Do individual investors do enough to protect themselves in the investment markets?
A: No. Individual investors still fall prey to scamsters. They still invest with people who simply call them on the telephone.
Q: What should they do?
A: It is essential that investors not base investment decisions on the weight of a telephone call with a person they’ve never met. You should no more choose somebody who will have your economic life in their hands without meeting them than you would choose a doctor that way. These are decisions that require talking to someone face to face. And it is essential that you know how that person is paid. You have to look your broker in the eye and ask the uncomfortable questions.
Also, investors have got to be skeptical. They have to be intellectual rather than emotional. Even with the market at its present level, I think the risks are considerable to careless investors, to thoughtless investors, to accepting investors.
Q: You’ve spent a lot of time in the last several years talking to individual investors and getting your staff to educate investors on mutual fund fees, tax costs, dilution caused by employee stock options--in other words, a lot of complicated but important issues. What does the future hold for the SEC on these issues? Do you think the agency will remain interested in educating and protecting small investors?
A: The commission has had an extraordinary tradition of excellence and has always stood for investor protection. But in a democracy, it is the people themselves who will determine what type of an SEC there is. It is my hope that educated investors will prevent any action by Congress or successor SEC chiefs that would diminish those investor protections.
Q: What other advice do you have for investors?
A: Individual investors need to understand that Congress has a tremendous bearing on investing these days. Every individual investor ought to hold their representatives accountable on investor issues. How did they vote on a budget for the SEC? On an independent Financial Accounting Standards Board? How did they vote on market structure issues?
Since so much of what happens to investor protection happens on Capitol Hill, that’s where investors need to make their impact felt.
