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COPYRIGHT 2002 All rights reserved. Reproduced by permission of The Condé Nast Publications Inc.
Nothing, it has been said, is duller than accounting -- until someone is defrauded. And after every modern financial disaster -- the stock-market crash of 1929, the bankruptcy of the Penn Central Railroad in 1970, the savings-and-loan crisis of the eighties, and now the bankruptcy of the Enron Corporation -- investors have tended to ask the same question: where were the auditors?
Arthur Levitt, Jr., who was the chairman of the Securities and Exchange Commission under President Bill Clinton, believes that in the years leading up to Enron's collapse the auditors were busy organizing themselves into a lobbying force on Capitol Hill -- one that has been singularly effective. Levitt, who issued a series of warnings about the accounting profession in those years, suggests that the aim of the so-called Big Five accounting firms -- PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young, K.P.M.G., and Arthur Andersen, Enron's auditor -- was to weaken federal oversight, block proposed reform, and overpower the federal regulators who stood in their way. "They waged a war against us, a total war," Levitt said.
Some have portrayed Enron's crash and the woes of Arthur Andersen simply as huge business failures. "There are always going to be bad apples," said Jay Velasquez, a former aide to Senator Phil Gramm, who is now a Washington lobbyist for the accounting profession, and who has fought increased regulation. Barry Melancon, who heads the American Institute of Certified Public Accountants, the profession's trade group, which has three hundred and fifty thousand members, fears that those who are trying to impose political solutions will overreact. "We live in a free-market system," Melancon told me. "Businesses fail. People are not infallible."
But Levitt casts the Enron story in starker terms. It is, as he puts it, "the story of the nineties" -- a battle between public and private interests that is being fought at a time when there is more corporate money in politics than ever before. "This is about corporate greed," Levitt told me. "It is the result of two decades of erosion of business ethics. It was the ultimate nexus of business and politics. If there was ever an example where money and lobbying damaged the public interest, this was clearly it."
Levitt, who is seventy-one and has silver hair, exhibits a starchy correctness. He still seems bitter about his war with the accounting trade, and called one adversary "an oily weasel" and another "a sly mongoose" as he spoke about the influence of money on politics. "It used to be that if industries had a problem they would try to work it out with the regulatory authorities," he said, in his sleek office at the Carlyle Group, in midtown Manhattan, surrounded by mementos of years in public life. "Now they bypass the regulators completely, and go right to Congress." Their campaign contributions lend them clout. "It's almost impossible to compete with the effect that money has on these congressmen." Enron's campaign contributions and its political power have received much attention, but two of the top five accounting firms -- Arthur Andersen and Deloitte -- and the accountants' trade association actually spent more during the 2000 elections. "The money was enormous," Levitt said. "Look at the end result."
Not many years ago, Levitt was considered a consummate Wall Street insider, even an operator. In 1993, when President Clinton picked him to run the Securities and Exchange Commission, he was a centrist, a well-connected fund-raiser who had contributed to both parties. He had founded his own lobbying organization, the American Business Conference, to advocate the interests of small business on Capitol Hill. He was also someone with a knack for cultivating famous and powerful friends. In the nineteen-sixties, he joined a successful start-up New York firm as a stockbroker, and he eventually counted among his clients Leonard Bernstein, Aaron Copland, and Kenneth Clark. Three of Levitt's original partners were Sanford Weill, who became the chairman of Citigroup; Arthur Carter, now the publisher of the New York Observer; and Roger Berlind, who became a Broadway producer. (Levitt had his own ties to Broadway; his aunt was Ethel Merman.) Levitt thrived, too, and by the late sixties he was running Shearson Hayden Stone, which later became Shearson Lehman Brothers.
In 1977, after being asked to head a search committee for the next leader of the American Stock Exchange, he got the job himself. A few years later, he was thinking of investing in...
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