Arthur Levitt Speaks Softly And Carries A Little Stick

When President Clinton unexpectedly vetoed a securities-litigation reform bill on Dec. 19, it marked a setback for Securities & Exchange Commission Chairman Arthur Levitt Jr. The SEC chief had toiled for months to forge a compromise that satisfied Republicans' desire to curb nuisance suits and the Administration's insistence on protection for small investors. Congress overrode the veto, but the debacle dealt a blow to Levitt's dream of becoming a consensus-builder able to bridge the gulf on Capitol Hill.

Because the veto blindsided GOP lawmakers, Levitt comes off looking ineffectual. White House pols seeking favor with the trial lawyers' lobby swayed the President, rather than Levitt. And Levitt's O.K. of a "safe-harbor" section of the bill that protects companies from suits over false projections riled consumer groups. "Levitt's credibility has been deeply wounded by playing politics," says Michael A. Calabrese, a director of Congress Watch and an opponent of the bill.

BIT PLAYER? Levitt, 64, former chairman of the American Stock Exchange, was viewed as a savvy regulator when Clinton appointed him in 1993. Since the Republican takeover of Congress, he has skillfully courted GOP legislators. His modus operandi: seizing chances to get with the Republicans' deregulatory program. For example, after winning GOP concessions on the safe-harbor provision of the securities-reform measure--including the exclusion of such protection for initial public offerings--Levitt signed off on that portion of the bill. High-tech companies with volatile stock prices had sought the change to reduce their exposure to costly lawsuits.

While Levitt contends he would have opposed the legislation if the safe-harbor provision had not been modified, critics grumble that he chose to blink rather than duke it out with Republicans. "I was stunned," says former SEC Commissioner Richard Y. Roberts, a Republican, of Levitt's position.

More surprising, though, was Levitt's nonrole in the President's veto decision. Clinton relied mainly on longtime Arkansas adviser Bruce Lindsey and Deputy Chief of Staff Harold Ickes in arriving at his no-go decision. Levitt, for his part, insists his views were well known to the White House.

The perception that Levitt was a bit player in the affair could hurt next year when the House will consider paring back securities regulations. Rather than mounting an all-out assault on the bill's objectionable provisions, the SEC chief is trying to win a place at the negotiating table while pushing to eliminate overlapping state and federal regulations. Yet with Levitt's White House clout now in question, the bill's sponsors may be less inclined to make concessions.

Levitt's efforts to protect his agency's funding could also take a hit. So far, his accommodating approach has paid off. Republicans who have savaged other regulatory agencies are expected to hold the SEC budget steady at $300 million in 1996. But Congress could well make another run at the regulator's budget next year, while Levitt appears weakened.

Despite his recent wounding, Levitt shows no signs of a retreat from his agenda. He still intends to pressure the National Association of Securities Dealers to reform the NASDAQ market and make it more equitable for small investors. And the SEC chief is about to unveil a proposal to require more disclosure of derivative holdings, which could greatly complicate companies' public filings. "I expect flak from all quarters," Levitt says serenely. But his success in dodging the next round of artillery shells may determine the legacy Levitt leaves behind at an embattled SEC.

Before it's here, it's on the Bloomberg Terminal.