The silver eminence tapped to become the Securities & Exchange Commission's 27th chairman is a towering figure. With vast experience on Wall Street, in Corporate America, academia, the military, philanthropy, and even Washington, William Donaldson has rolled up his sleeves and dug into most every important field of American life. At any other juncture in history, his nomination to lead the SEC would nearly go unquestioned. Today is different.
For all his achievements, Donaldson comes up short in one notable way: direct service to investors on Main Street. They are American capitalism's strength, yet today many find themselves abused and powerless to do much about it. In hopes that Donaldson will focus his considerable powers on the inequities that have driven so many individual investors out of the market and now keep them on the sidelines, I would like to introduce him to two everyday investors.
First is 80-year-old Augusta Litwer, whose friends in Seattle call her Gussie. She calls herself a "peanuts" investor. A retired office manager, Litwer first got into the market back in 1956 via a monthly investment plan. In 2001, her broker suggested stock in undersea-cable company TyCom, then a publicly traded unit of Tyco (TYC). She bought 200 shares. Months later, Tyco moved to buy out Litwer and fellow minority shareholders, and she got 62 Tyco shares. Her broker advised her not to sell.
The rest is scandalous history. Dennis Kozlowski, then Tyco's CEO and TyCom's chairman, now faces corporate theft and fraud charges, which he denies. Litwer dumped her Tyco stock last May at a 37% loss on her original investment. She blames herself, not her broker, for not selling sooner. But what she can't get over is how no one, not regulators and strangely not Tyco's directors, saw anything amiss. Three years ago, the SEC spotted nothing awry, either, despite months of probing Tyco's books. "I wrote Kozlowski a letter and asked him for a check," she says. "If I'm lucky, he'll end up in jail before I die." Though the SEC is all over Tyco again, she's not convinced the agency will head off problems elsewhere. For instance, she is now selling Citigroup (C), which she also worries isn't altogether on the up-and-up. Note to Bill Donaldson: Lifting the tax on dividends is not going to revive the market if investors fear getting rooked on stocks.
Then, there's Mark Gottlieb. He is battling a different, but perhaps more widespread, problem. Short of entering arbitration--a process distrusted by many investors as inherently biased against them--how do you get help with a brokerage complaint? A 41-year-old marketing consultant from Little Ferry, N.J., Gottlieb on Oct. 10 tried to buy 400 shares of utility company Public Service Enterprise Group (PEG) via his online account at Vanguard Group. The trade never went through. Vanguard told Gottlieb that his order arrived too late to be executed at the price he had specified. Gottlieb suspects Vanguard's software is to blame. What in fact went wrong may forever be lost in cyberspace. Indisputable is that the stock is now up 60%, and Gottlieb figures he should be $5,400 richer.
Yet to Gottlieb, that's not the worst of it. This is: For all the market watchdogs that he has called, from the NASD to state regulators to the SEC, he is left feeling impotent. "It's my word against the second-biggest mutual fund company in the world. Who wins? They do," he says. "The whole process of trying to get justice is just impossible. The NASD, the SEC, they all just pass the buck. They know that the little guy will probably give up and get discouraged." Memo No. 2 to Mr. Donaldson: Those feeling powerless don't rush to take risks.
In brief remarks at the White House, Donaldson committed himself "to doing everything that I can do to restore the confidence of investors in the U.S. corporate and financial industry." A daunting challenge, and one that he can meet only by relentlessly advocating not for old colleagues back on the Street and in corporate boardrooms, but first and foremost for Gussie Litwer and Mark Gottlieb--capitalism's strength. By Robert Barker