Arthur Levitt
Encyclopedia
Arthur Levitt, Jr. was the twenty-fifth and longest-serving Chairman of the United States Securities and Exchange Commission
(SEC) from 1993 to 2001. Widely hailed as a champion of the individual investor, he has been criticized for not pushing for tougher accounting rules. Since May 2001 he has been employed as a senior adviser at the Carlyle Group
. Levitt also serves as a policy advisor to Goldman Sachs
and as a Director of Bloomberg LP, parent of Bloomberg News.
, Levitt received his first exposure to the world of finance through his father, Arthur Levitt, Sr.
, who served as New York State Comptroller
for 24 years and was sole trustee of the largest pension fund in America at the time. Levitt graduated Phi Beta Kappa
from Williams College
in 1952, before serving for two years in the Air Force
. He first worked as a drama critic for The Berkshire Eagle, and after the Air Force
, he was with Time-Life
for five years before selling cattle and ranches as tax shelters.
In 1963, Levitt joined the relatively young brokerage firm Carter, Berlind & Weill, founded just three years earlier by Sanford I. Weill
. Levitt's name was eventually added to the firm's when it was renamed Cogan, Berlind, Weill & Levitt
in the mid-1960s although through a series of mergers the firm eventually evolved into Shearson Loeb Rhoades. This experience with retail customers was a source of his interest in the small investor. After sixteen years on Wall Street
, Levitt became the Chairman of the American Stock Exchange
(AMEX) in 1978. In 1989, he left the AMEX to serve as Chairman of the New York City Economic Development Corporation
until 1993. Before joining the SEC, Levitt owned Roll Call
, a newspaper that covers Capitol Hill.
in July 1993 and reappointed in May 1998. He left the Commission on February 9, 2001, and was succeeded by Harvey Pitt
. Levitt has said that he first learned of his being considered for the job from The Wall Street Journal
.
At the time Levitt came to the SEC, the Financial Accounting Standards Board
(FASB) had proposed requiring companies to record stock options on their income statements, which split the accounting industry and was opposed by many in the American business community. According to a Merrill Lynch study, expensing stock options
would have reduced profits among leading high-tech companies by 60% on average. Congress began to exert pressure on the FASB, and on May 3, 1994, the Senate
, led by Democratic
Senator Joe Lieberman
, offered a non-binding resolution urging FASB not to adopt the proposed rule; the vote in favor was 88-9. Concerned that insensitivity to this sentiment in Congress might threaten FASB as an independent standard setter, Levitt urged the FASB to not go ahead with the rule proposal. He later said this "was probably the single biggest mistake I made in my years at the SEC."
One speech he gave as chairman was in September 1998 at New York University. His speech, entitled "The Numbers Game," addressed five ways in which corporations were managing earnings (big bath charges
, creative acquisition accounting, cookie-jar reserves
, materiality, revenue recognition). In his speech, Levitt advocated improving the transparency and comparability of financial statements.
In 1997, the SEC under Levitt's leadership approved the exemption of some Enron partnerships from the tight accounting controls of the Investment Company Act of 1940. Without this exemption, critics maintain, the company would have been constrained by strict rules found in 1996 legislation that would have prohibited certain foreign investments and the shifting of debt to its foreign subsidiary shell companies.
During Levitt's tenure at the SEC, he was widely viewed as a pro-investor advocate and received favorable press coverage. More recently he has come under criticism for failing to act against 1990s bull market abuses and not uncovering Bernard Madoff's Ponzi scheme.
In 2005, Levitt was named a special advisor to the American International Group
's board of directors and the board's nominating and corporate governance committee following the resignation of CEO and Chairman Maurice "Hank" Greenberg
, who left after an investigation into the firm's accounting practice
s by New York Attorney General Eliot Spitzer
.
Levitt oversaw an audit published in August 2006, by Kroll Inc. -- where he is a consultant—describing how the City of San Diego had allowed a pension deficit of $1.43 billion. The report blamed around 30 city officials, including five incumbent council members. According to the San Diego Union Tribune http://www.signonsandiego.com/uniontrib/20050809/news_1m9kroll.html, Kroll charged the City of San Diego $21 million for the report, with Levitt's time billed at $900 per hour.
.
The Arthur Levitt State Office Building
in downtown Manhattan was named for him until it was sold to private developers in 2000.
United States Securities and Exchange Commission
The U.S. Securities and Exchange Commission is a federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States...
(SEC) from 1993 to 2001. Widely hailed as a champion of the individual investor, he has been criticized for not pushing for tougher accounting rules. Since May 2001 he has been employed as a senior adviser at the Carlyle Group
Carlyle Group
The Carlyle Group is an American-based global asset management firm, specializing in private equity, based in Washington, D.C. The Carlyle Group operates in four business areas: corporate private equity, real assets, market strategies and fund-of-funds, through its AlpInvest subsidiary...
. Levitt also serves as a policy advisor to Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
and as a Director of Bloomberg LP, parent of Bloomberg News.
Early life and career
Growing up in a Jewish family in BrooklynBrooklyn
Brooklyn is the most populous of New York City's five boroughs, with nearly 2.6 million residents, and the second-largest in area. Since 1896, Brooklyn has had the same boundaries as Kings County, which is now the most populous county in New York State and the second-most densely populated...
, Levitt received his first exposure to the world of finance through his father, Arthur Levitt, Sr.
Arthur Levitt, Sr.
Arthur Levitt was an American lawyer and politician.-Life:He served in the U.S...
, who served as New York State Comptroller
New York State Comptroller
The New York State Comptroller is a state cabinet officer of the U.S. state of New York. The duties of the comptroller include auditing government operations and operating the state's retirement system.-History:...
for 24 years and was sole trustee of the largest pension fund in America at the time. Levitt graduated Phi Beta Kappa
Phi Beta Kappa Society
The Phi Beta Kappa Society is an academic honor society. Its mission is to "celebrate and advocate excellence in the liberal arts and sciences"; and induct "the most outstanding students of arts and sciences at America’s leading colleges and universities." Founded at The College of William and...
from Williams College
Williams College
Williams College is a private liberal arts college located in Williamstown, Massachusetts, United States. It was established in 1793 with funds from the estate of Ephraim Williams. Originally a men's college, Williams became co-educational in 1970. Fraternities were also phased out during this...
in 1952, before serving for two years in the Air Force
United States Air Force
The United States Air Force is the aerial warfare service branch of the United States Armed Forces and one of the American uniformed services. Initially part of the United States Army, the USAF was formed as a separate branch of the military on September 18, 1947 under the National Security Act of...
. He first worked as a drama critic for The Berkshire Eagle, and after the Air Force
United States Air Force
The United States Air Force is the aerial warfare service branch of the United States Armed Forces and one of the American uniformed services. Initially part of the United States Army, the USAF was formed as a separate branch of the military on September 18, 1947 under the National Security Act of...
, he was with Time-Life
Time-Life
Time–Life is a creator and direct marketer of books, music, video/DVD, and multimedia products. Its products are sold throughout North America, Europe, Australia, and Asia through television, print, retail, the Internet, telemarketing, and direct sales....
for five years before selling cattle and ranches as tax shelters.
In 1963, Levitt joined the relatively young brokerage firm Carter, Berlind & Weill, founded just three years earlier by Sanford I. Weill
Sanford I. Weill
Sanford I. "Sandy" Weill is an American banker, financier and philanthropist. He is a former chief executive officer and chairman of Citigroup. He served in those positions until October 1, 2003, and April 18, 2006, respectively....
. Levitt's name was eventually added to the firm's when it was renamed Cogan, Berlind, Weill & Levitt
Cogan, Berlind, Weill & Levitt
Cogan, Berlind, Weill & Levitt, originally Carter, Berlind, Potoma & Weill, was an American investment banking and brokerage firm founded in 1960 and acquired by American Express in 1981. In its two decades as an independent firm, Cogan, Berlind, Weill & Levitt served as a vehicle for the rollup...
in the mid-1960s although through a series of mergers the firm eventually evolved into Shearson Loeb Rhoades. This experience with retail customers was a source of his interest in the small investor. After sixteen years on Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
, Levitt became the Chairman of the American Stock Exchange
American Stock Exchange
NYSE Amex Equities, formerly known as the American Stock Exchange is an American stock exchange situated in New York. AMEX was a mutual organization, owned by its members. Until 1953, it was known as the New York Curb Exchange. On January 17, 2008, NYSE Euronext announced it would acquire the...
(AMEX) in 1978. In 1989, he left the AMEX to serve as Chairman of the New York City Economic Development Corporation
New York City Economic Development Corporation
New York City Economic Development Corporation is a non-profit local development corporation that promotes economic growth across New York City's five boroughs. It is the City's official Economic development corporation, charged with using the City's assets to drive growth, create jobs, and...
until 1993. Before joining the SEC, Levitt owned Roll Call
Roll Call
Roll Call is a newspaper published in Washington, D.C., United States, from Monday to Thursday when the United States Congress is in session and on Mondays only during recess. Roll Call reports news of legislative and political maneuverings on Capitol Hill, as well as political coverage of...
, a newspaper that covers Capitol Hill.
Chairman of the SEC
Levitt was appointed to his first five-year term as Chairman of the SEC by President ClintonBill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
in July 1993 and reappointed in May 1998. He left the Commission on February 9, 2001, and was succeeded by Harvey Pitt
Harvey Pitt
Harvey Pitt was the 26th chairman of the U.S. Securities and Exchange Commission , serving from 2001-2003. He led the SEC in restoring the U.S...
. Levitt has said that he first learned of his being considered for the job from The Wall Street Journal
The Wall Street Journal
The Wall Street Journal is an American English-language international daily newspaper. It is published in New York City by Dow Jones & Company, a division of News Corporation, along with the Asian and European editions of the Journal....
.
At the time Levitt came to the SEC, the Financial Accounting Standards Board
Financial Accounting Standards Board
The Financial Accounting Standards Board is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles within the United States in the public's interest...
(FASB) had proposed requiring companies to record stock options on their income statements, which split the accounting industry and was opposed by many in the American business community. According to a Merrill Lynch study, expensing stock options
Stock option expensing
Stock option expensing is a method of accounting for the value of share options, distributed as incentives to employees, within the profit and loss reporting of a listed business....
would have reduced profits among leading high-tech companies by 60% on average. Congress began to exert pressure on the FASB, and on May 3, 1994, the Senate
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...
, led by Democratic
Democratic Party (United States)
The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...
Senator Joe Lieberman
Joe Lieberman
Joseph Isadore "Joe" Lieberman is the senior United States Senator from Connecticut. A former member of the Democratic Party, he was the party's nominee for Vice President in the 2000 election. Currently an independent, he remains closely affiliated with the party.Born in Stamford, Connecticut,...
, offered a non-binding resolution urging FASB not to adopt the proposed rule; the vote in favor was 88-9. Concerned that insensitivity to this sentiment in Congress might threaten FASB as an independent standard setter, Levitt urged the FASB to not go ahead with the rule proposal. He later said this "was probably the single biggest mistake I made in my years at the SEC."
One speech he gave as chairman was in September 1998 at New York University. His speech, entitled "The Numbers Game," addressed five ways in which corporations were managing earnings (big bath charges
Big bath
Big Bath in accounting is an earnings management technique whereby a one-time charge is taken against income in order to reduce assets, which results in lower expenses in the future. The write-off removes or reduces the asset from the financial books and results in lower net income for that year...
, creative acquisition accounting, cookie-jar reserves
Cookie jar accounting
Cookie jar accounting or cookie jar reserves is an accounting practice in which a company uses generous reserves from good years against losses that might be incurred in bad years....
, materiality, revenue recognition). In his speech, Levitt advocated improving the transparency and comparability of financial statements.
In 1997, the SEC under Levitt's leadership approved the exemption of some Enron partnerships from the tight accounting controls of the Investment Company Act of 1940. Without this exemption, critics maintain, the company would have been constrained by strict rules found in 1996 legislation that would have prohibited certain foreign investments and the shifting of debt to its foreign subsidiary shell companies.
During Levitt's tenure at the SEC, he was widely viewed as a pro-investor advocate and received favorable press coverage. More recently he has come under criticism for failing to act against 1990s bull market abuses and not uncovering Bernard Madoff's Ponzi scheme.
After the SEC
Mr. Levitt serves on the Board of Directors for RiskMetrics Group.In 2005, Levitt was named a special advisor to the American International Group
American International Group
American International Group, Inc. or AIG is an American multinational insurance corporation. Its corporate headquarters is located in the American International Building in New York City. The British headquarters office is on Fenchurch Street in London, continental Europe operations are based in...
's board of directors and the board's nominating and corporate governance committee following the resignation of CEO and Chairman Maurice "Hank" Greenberg
Maurice R. Greenberg
Maurice Raymond "Hank" Greenberg is an American business executive and former chairman and CEO of American International Group , which was the world's 18th largest public company and its largest insurance and financial services corporation.He is currently chairman and CEO of C.V. Starr & Co., Inc....
, who left after an investigation into the firm's accounting practice
Standard accounting practice
Standard accounting practices require publicly-traded companies to follow certain accounting rules when presenting financial statements so that the readers of the statements can easily compare different companies...
s by New York Attorney General Eliot Spitzer
Eliot Spitzer
Eliot Laurence Spitzer is an American lawyer, former Democratic Party politician, and political commentator. He was the co-host of In the Arena, a talk-show and punditry forum broadcast on CNN until CNN cancelled his show in July of 2011...
.
Levitt oversaw an audit published in August 2006, by Kroll Inc. -- where he is a consultant—describing how the City of San Diego had allowed a pension deficit of $1.43 billion. The report blamed around 30 city officials, including five incumbent council members. According to the San Diego Union Tribune http://www.signonsandiego.com/uniontrib/20050809/news_1m9kroll.html, Kroll charged the City of San Diego $21 million for the report, with Levitt's time billed at $900 per hour.
Awards and honors
In January 2001, Levitt received the "Award for Distinguished Leadership in Global Capital Markets" from the Yale School of ManagementYale School of Management
The Yale School of Management is the graduate business school of Yale University and is located on Hillhouse Avenue in New Haven, Connecticut, United States. The School offers Master of Business Administration and Ph.D. degree programs. As of January 2011, 454 students were enrolled in its MBA...
.
The Arthur Levitt State Office Building
Tower 270
Tower 270 is a 28-story mixed use building in Downtown Manhattan that was the headquarters of the Manhattan Project that developed the atomic bomb during World War II.During World War II it was a federal office building...
in downtown Manhattan was named for him until it was sold to private developers in 2000.