U.S. Financial Overhaul Missed a Chance to Protect Investors, Levitt Says

Financial-overhaul legislation being debated by the U.S. Congress doesn’t adequately protect investors, according to Arthur Levitt, former chairman of the Securities and Exchange Commission.

“The bill, already weakened by deal-making as it emerged from the Senate, has been bled dry of nearly every meaningful protection of investors,” Levitt wrote in a column posted yesterday on the Wall Street Journal’s website. Lawmakers in Washington are working to resolve differences between the bill the House approved in December and a version the Senate passed last month.

Congress missed an opportunity to address the role that government-sponsored mortgage companies Fannie Mae and Freddie Mac played in causing the financial crisis and should have limited their activities, Levitt wrote. Lawmakers fell short by failing to pass a rule that would have required investment advisers to serve clients’ best interests, he said.

Levitt criticized a provision that allows more companies to avoid audit rules, weakening what he called the “most-important investor reform of the last decade.” The proposed legislation keeps in place rules that permit municipal-bond issuers to face lighter scrutiny than those selling corporate debt, and may contribute to a crisis for state and local governments, he said.

“If the municipal-bond market melts down in the next few years, we’ll know who to blame,” Levitt wrote.

Levitt, chairman of the SEC from 1993 to 2001, is an adviser to the Carlyle Group and a board member of Bloomberg LP, the parent of Bloomberg News.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net