PHILADELPHIA — Within the confines of a 2-century-old Quaker meetinghouse here, Arthur Levitt, the departing chairman of the Securities and Exchange Commission, was in his element. In his 43rd, and final, investors' town hall meeting earlier in January, Levitt sounded the battle cry against financial miscreants — and the crowd loved it.
The event, so crowded that people were packed to the balcony, quickly turned into a tribute to Levitt, the longest-serving SEC chairman ever. There were rounds of applause, a standing ovation and, on the train back to Washington that night, SEC staff members traveling with Levitt broke open bottles of champagne to toast their boss.
Not every moment in Levitt's eight years at the commission, however, has been so sweet. Coming into office in 1993 — many say as a consolation prize for not having been named Treasury secretary — Levitt staked out an activist stance on behalf of investors that led to head-butting battles with accountants, lawyers, Congress, his own staff, local politicians and financial exchanges.
"There were a lot in the industry who felt Arthur was too tough on them," said Alan S. Blinder, an economist at Princeton University and a board member of the American Stock Exchange. "But if people think he was too tough, look at the markets. It's been a fabulous period to be on Wall Street."
A former Wall Street executive with an eclectic resume — drama critic, cattle trader, broker, publisher and stock exchange leader — Levitt brought an insider's knowledge and a crusader's attitude to his job as the top securities regulator.
He hit some marks and missed others. He ran up a remarkable string of victories over price fixing on securities exchanges, conflicts of interest among accountants and influence-peddling in the municipal bond market. He fell short elsewhere. His goal of a single national securities exchange remains unfinished business.
And, some say his demanding and frequently autocratic style resulted in high staff turnover and often turned the five-member commission into more of a rubber stamp than an independent policy-setting body.
Levitt began by breaking with the approaches of recent chairmen. John S. R. Shad, also a Wall Street executive, came to office in 1981 with a deregulatory agenda. David S. Ruder's two-year tenure focused on restoring confidence after the 1987 crash. Richard C. Breeden initiated high-profile insider-trading cases after the junk bond scandals.
Levitt set his tone by putting the words of William O. Douglas, the SEC chairman from 1937 to 1939 who went on to become a Supreme Court justice, at the top of the commission's Web site: "We are the investors' advocate."
While seemingly simple-sounding, investor protection provided an expansionary vision for Levitt to extend the commission's regulatory reach and gave him a policy wedge to poke into nearly every aspect of the securities business. He did this in spite of a feeling on Wall Street that he was "one of us" and would treat the industry with kid gloves.
"Arthur Levitt proved to be an activist and a reformer," said John Coffee, a professor at Columbia Law School. "He came in with deep connection to the industry and other chairmen with those connections have been temperate in the changes they've made. Instead, he was confrontational and a politician."
His activism expanded the scope of the SEC and elevated the importance of the chairmanship. Yet for all his personal charm and drive, some say, Levitt could also be thin-skinned about criticism; he still remembers even tiny slights that took place years earlier.
Levitt also perfected a political style that often consisted of going over people's heads — directly to the public to rope in a recalcitrant Congress, to the top executives of Wall Street firms to get their underlings in line, to an inner circle of staff members to present a fait accompli to his fellow commissioners.
"I'm intensely competitive and when I get into one of these jobs, I see things as a competition," Levitt, 69, said in an interview in his Washington office, which he plans to leave on Feb. 9. "I know I did things that my staff didn't like. But I had a limited time. I knew what I wanted to accomplish."
President Bush has yet to nominate Levitt's replacement. While Washington predictions are often wrong, those mentioned include James Doty and William Heyman, former SEC officials; two Wall Streeters, Frank Zarb and Donald Marron; and Representative Christopher Cox, a California Republican.
Levitt's breakthrough victory came in 1996. After an inquiry by the Department of Justice, the S.E.C. censured the National Association of Securities Dealers, which owns Nasdaq, the world's second-largest stock market. The S.E.C. found that Wall Street dealers colluded to keep spreads between buy and sell prices artificially high, allowing dealers to profit at investors' expense.
Nasdaq dealers had to pay more than $1 billion to settle the case. Nasdaq was restructured and new trading rules were adopted. As a result, spreads have narrowed by 30 percent on Nasdaq trades, shifting billions of dollars to investors.
"Arthur Levitt went to the chairman of the N.A.S.D. and said, 'Either you put together a blue-ribbon committee to straighten out this mess, or I will do it,' " said Warren Rudman, a former Republican senator who headed that committee. "Arthur brought to the S.E.C. a deeply held belief the securities business did not have a level playing field for the average American. "
Actions against every major exchange followed — in 1999 against the New York Stock Exchange for self-dealing among floor brokers and, last year, against the Chicago Board Options Exchange, the American Stock Exchange and others for anticompetitive conduct.
"The Nasdaq crisis was enormous," Levitt said. "The whole establishment came down on me."
Still, some complain these efforts only resulted in big trading firms' being favored over small ones. "It means the public has fewer places to do business," said Alan Davidson, president of the Independent Broker-Dealer Association.
Then there was the push to clean up the municipal bond market, where billions of dollars in public bond deals were often handed out on the basis of campaign contributions. The son of a career New York politician, Levitt staked this out early. "Before I took the job, I knew I would go at that," he said.
The effort resulted in new regulations prohibiting Wall Street firms that are underwriting public bonds from making campaign contributions to the local politicians that hand out this business. This was backed up by several high-profile enforcement cases against major firms like Lazard Freres and Merrill Lynch. These cases resulted in millions in fines, as well as prison terms for some on Wall Street.
"At the beginning of the municipal cases, people were telling us that we were making this stuff up," said Richard H. Walker, the S.E.C.'s enforcement director. "It took a few cases about bribes and kickbacks before people started saying, 'Hey, those guys are onto something.' "
Early on, Levitt also went to war with Congress, blocking a Republican effort in 1995 to eliminate the S.E.C.'s Investor Education Department. He started investor town hall meetings, required that more financial documents be in plain English and fought Internet scams.
These efforts finally led to Regulation FD, for fair disclosure, a controversial measure that requires corporations not to provide financial information to Wall Street analysts before ordinary investors.
The enactment of Regulation FD, which was opposed by Wall Street and many in Congress, is an example of how Levitt used political leverage to get his way. He invited important members of Congress to attend town hall meetings — making the point that he could often draw a bigger crowd in their district than they could. And then, when Regulation FD was in trouble, he unleashed an army of small investors on Capitol Hill.
Still, Regulation FD has received mixed reviews. "It's not clear the investing public gains," said Harold Vogel, an investment manager. "They may be better off when information is digested artfully and the stock moves gradually." But Mario Gabelli, who heads his own investment firm, differs. Regulation FD, he said, "levels the playing field and brings back old-fashioned, bottoms-up, belly-to-belly financial analysis."
Levitt's relations with Congress have hardly been smooth. One crucial element of the Republican's Contract with America was overhauling litigation law to make it more difficult for shareholders to sue corporations — a measure Levitt strongly opposed. He threw himself into the fray, working to minimize the effects of the measure. It ultimately passed over a presidential veto; Levitt now says it "hasn't been all bad."
He also worked to thwart the effects of the Fields-Markey bill, a deregulatory measure that would have repealed many existing investor protections. It "would have pushed us back to the Stone Age," Levitt said.
But through cajoling and compromise, the bill was defanged before it passed. "Levitt did a good job in fighting it," said a Democratic banking committee staff member.
It was hardball honed to a fine art.
"His general approach is to lay out a marker and then push to get as close as he could," said John F. Olson, a Washington lawyer for accounting firms attacked by Levitt. "I don't think anyone who negotiated with Arthur said he caved in."
Within the S.E.C., issues of sagging morale remain. Levitt is repeatedly described as a demanding boss who reprimanded employees by telling them how much they disappointed him.
Partly because of his managerial style and partly because salaries at the S.E.C. are 40 percent lower than at other financial regulators, turnover at the agency has reached 25 percent in the last two years. Attempts by Levitt to get better wages have been stonewalled by Congress. That and Levitt's demanding style resulted in a decision by S.E.C. employees to unionize.
At the same time, Levitt's penchant for making decisions within a small circle of advisors has, some say, weakened the role of the commission itself, once an arena for vigorous policy debates. It has become so diminished that securities industry lobbyists in Washington say they rarely bother to attend commission meetings.
If Nasdaq was Levitt's incoming struggle, his fight with the accounting profession over the integrity of audited financial statements — the backbone of investment decisions — was his outgoing battle.
The real fireworks came last year when Levitt began a push for accounting firms to split their auditing and consulting businesses. Levitt felt that many auditors had become too cozy with their corporate consulting clients and were relaxing their auditing standards.
A heavy political donor, the accounting industry last year enlisted 46 members of Congress to fight the plan, questioning the S.E.C.'s fairness and its authority to regulate accounting.
Last November, the two sides finally settled. While Levitt did not succeed in splitting auditing from consulting, the industry accepted strict new ethics rules and limits on the audit business.
"It was a compromise," said Barry Maleancon, president of the American Institute of Certified Public Accountants. "Unfortunately, too much of the debate was in the open."
For Levitt, that was enough to claim victory: "The accounting profession has paid a terrible price — they were publicly pilloried. It's a price they don't recognize yet."