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Levitt's Legacy Is Praised, and Attacked


As Arthur Levitt's resignation from the chairmanship of the Securities and Exchange Commission took effect earlier this month, assessments of his eight-year legacy varied widely. While some hailed Levitt - the commission's longest serving chairman ever - as an outstanding chairman who established a new standard for the commission's role in shareholder advocacy, others criticized him for both not sufficiently upholding shareholder interests and for going overboard in doing so.

"I think Levitt has been absolutely spectacular," said Don Phillips, a managing director with Morningstar of Chicago. "I don't think there has ever been a better SEC commissioner. I think we'll be hard-pressed and very fortunate to see one as good in our lifetimes."

Perhaps one of Levitt's greatest attributes was that he recognized that the fund industry was fairly well regulated and did not need to be drastically changed, Phillips said.

"I think he rightly recognized that the mutual fund landscape was pretty well lit and [was a] pretty level playing field," he said. "In a sense, he focused on more cosmetic things in the industry as opposed to trying to do real startling, stark change to the fund industry. So in that sense, he was kind of a best of all worlds kind of commissioner."

That did not mean Levitt was not dedication to shareholders, however, and he did represent their interests before the interests of the industry, Phillips said.

Two of Levitt's initiatives adopted later in his tenure set him at odds with some people in the industry, but they were designed to level the playing field for shareholders.

Some people in the industry, feeling that the SEC had overstepped its bounds, were disgruntled by Regulation Fair Disclosure, which was adopted in August. The Investment Company Institute of Washington D.C. felt the rule could have a "chilling" effect on funds' abilities to receive important information from securities issuers. The Association for Investment Management and Research, an industry association, of Charlottesville, Va., decried the regulation after it was adopted.

"What are they trying to defend?" said Phillips. "They are trying to defend the old boy's network, which makes no sense. It's exactly the kind of thing that a really visionary commissioner should be eliminating. ... It takes someone really brave like Levitt to stand up and say, The hell with the old system ... it's unfair. Let's put in something that is more fair to all investors.'"

The last rule adopted under Levitt mandating funds to report after-tax performance in their prospectuses also drew ICI criticism. The rule requires funds to calculate their performance using the highest tax bracket of 38.6 percent. That presents a worst-case scenario for shareholders, the ICI said. The ICI pressed to have a lower tax bracket, but the SEC held firm and adopted the rule using the 38.6 percent.

Levitt stood firmly on the side of investors on issues concerning information disclosure, said Ramy Shaalan, senior funds analyst at Wiesenberger/Thomson Financial of Rockville, Md. Thomson Financial is the publisher of this newsletter.

"The bottom line is, investors will gain more transparency into their funds and as a result will be better able to make more informed decisions," he said. "So I would say by far that's one of his biggest contributions."

Overall, fund investors today are more informed and aware of how a mutual fund operates because of Levitt, said Marianne Smythe, a partner in the law firm of Wilmer, Cutler & Pickering of Washington D.C. She is also a former director and associate director of the SEC's division of investment management.

"I think that during his eight years as chairman, Chairman Levitt achieved something quite important, although not tangible," she said. "And you can't point to it and say it was this rule or that action. It was a combination of things that added up to something. And I think what he achieved was to insist, in the area of mutual funds, that the investors' interests should be taken seriously, but more importantly, that the investors themselves become more involved in their own protection."

As a chairman, Levitt was unique in that he had a very public profile and he went to great lengths to educate investors and make them more discerning in their choices, Smythe said.

"In a broad subjective sense, he educated the American public and that's not an easy thing to do and he assiduously pursued that role," Smythe said. "I think he made a substantial contribution in that way."

But, not everyone will remember Levitt as the supreme shareholder advocate.

"I personally feel that Levitt didn't do anything," said Edward Siedle, president

of Benchmark Financial Services of Lighthouse Point, Fla. and formerly an attorney with the SEC.