The Mess on Wall Street.(Arthur Levitt)(Brief Article)(Interview)

Interview with Arthur Levitt

As chairman of the Securities and Exchange Commission from 1993 until last year, Arthur Levitt saw his share of financial scandals. Yet the scope of the recent Enron failure and the stunning string of corporate scandals that have followed seem to shock even him. In recent weeks, Levitt has emerged as a vocal advocate for change, calling for strong reforms that would separate consulting from accounting and impose tough new standards and more regulation. Meanwhile some of his old enemies in the U.S. Congress have begun to question whether Levitt himself might share some of the blame for the emerging mess. After all, much of the malfeasance now coming to light actually occurred under his watch. Levitt spoke about the scandals with NEWSWEEK's Adam Piore last week:You have blamed the recent wave of corporate scandals on "an almost total failure of all of our gatekeepers"--including regulators. What needs to be done and what are the obstacles to doing it?

A lot needs to be done because among the gatekeepers that I feel didn't do their job I would include the rating agencies, boards of directors, law firms, accountants, analysts, investment bankers, stock brokers, standard setters and, to some extent, regulators. I'm often asked which of those elements might have done the most to prevent Enron. The one that stands out in my mind are the standard setters--the Financial Accounting Standards Board [a private-sector organization in charge of setting U.S. accounting standards]. We were dealing with them for almost 15 year trying to establish [better] disclosure standards. But because of the business community and political pressure, they were simply unable to do it.

You tried to implement reforms as head of the SEC. Can you talk about the obstacles you faced?

On almost every pro-investor initiative we considered, we faced opposition from a deregulatory Congress. With respect to the accounting issues, opposition was the most fierce. Four or five different lobbying firms hired by the accountants tried to derail our efforts and, when that seemed it would fail, they tried to suggest ways of cutting off the funding the SEC would receive to promulgate an initiative to separate auditing and consulting. It was enormously frustrating. It was infuriating. I received letters from members of Congress who didn't begin to understand the issue.

Do you feel you should have done more?

In retrospect, yes. In ...