San Diego 'If Arthur Levitt approaches his job in San Diego as he did his position at the Securities and Exchange Commission, the people of San Diego will be left with a pile of adoring press clips, some impressive-sounding public statements, and no change in the status quo."
And that's probably why the city council hired Levitt, the self-promoting former head of the Securities and Exchange Commission. The council wants a report from his team that appears to be tough but underneath is soft on wrongdoers.
These are the opinions of Gary Weiss, author of Wall Street Versus America: The Rampant Greed and Dishonesty That Imperil Your Investments, a Penguin book that will be published April 10. The book excoriates the investment community and heaps contumely on Levitt, who headed the Securities and Exchange Commission during the 1990s. San Diego has hired him for $900 an hour to give yet another report on the City's hiding of its pension cancer from the investing public.
Weiss is one of the foremost investigative reporters covering Wall Street. The New York Post says Weiss's book is "a front-runner for most controversial business book of 2006...witty, readable, and hunts big game."
Robert Barker of Business Week says any investor should take a look at this book before signing up for a brokerage account. "You will see just how alone you truly are," says Barker.
Publishers Weekly says, "Weiss's savaging of oft-lionized ex-SEC chairman Arthur Levitt is particularly vicious and funny."
The book explains how Levitt schmoozes the press, does very little while in office, and takes credit for lots of reforms that are never achieved.
Weiss wrote many years for Business Week magazine before leaving to publish his first book, Born to Steal: When the Mafia Hit Wall Street.
Levitt is an author too. In 2002 after he left office, he published a book, Take on the Street: What Wall Street and Corporate America Don't Want You to Know and What You Can Do to Fight Back.
Weiss says Levitt's book should have been titled Take on the Street -- I Sure as Hell Didn't or Take on the Street -- Or How I Ignored the Worst Stock Market Abuses in History.
Although Levitt is still adored by the popular media, many who have studied the ethical stinkhole of the 1990s stock market bubble agree with Weiss. University of San Diego law professor Frank Partnoy, author of F.I.A.S.C.O.: Blood in the Water on Wall Street and Infectious Greed, says Levitt watched idly while the house was burning down in the 1990s and was one of the worst heads of the Securities and Exchange Commission.
Weiss and I traded several e-mails on what Levitt is being paid to do in San Diego. Says Weiss, "If past is prologue, what you will see is a report that contains enough unfavorable elements so that the media will say, 'This is a tough report.' But it will not measurably affect the status quo. Arthur is not going to produce a whitewash that will get him bad press. The Arthur Levitt I know will produce a tough-sounding report that will get him good press."
Levitt has already massaged the Union-Tribune editorial board. It keeps referring to him as a highly respected securities reformer and supports his attempts to squeeze more money out of the city. I have been sent copies of e-mails in which Levitt's subordinates tell former city manager P. Lamont Ewell how they have talked with editorial-page editors to get the party line across. On April 22 of last year, Lynn Turner, Levitt's former chief accountant at the securities agency and his deputy on the San Diego project, told Ewell, "I had a call today with Bill Osborn...Bill Kettle was on the other line." (The correct names and spellings are Osborne and Bob Kittle.)
Here's how Levitt got his remunerative position: After the city was forced to admit in early 2004 that it had concealed pension deficits in bond prospectuses for eight years, it hired the Houston law firm of Vinson & Elkins to do a study. Secretly, that law firm said, as quoted in the Reader on November 4, 2004, "We will of course make our best efforts to achieve a result in this inquiry that is satisfactory to the city." In short, it would be a whitewash. It was, exculpating city employees and politicians. KPMG, the accounting firm hired to audit the 2003 books, wouldn't accept the report. City attorney Mike Aguirre prepared his own reports accusing City officials of fraud and other illegal acts. The council hired Levitt's team to reconcile the reports by Vinson and Aguirre.
Weiss says that hiring Levitt "was a smart move from the standpoint of the people doing the hiring [city council]," because they will get what they want: no change in the status quo. But the citizens of San Diego should ask, "Did [the council] know that he sat by and did nothing during the worst Wall Street abuses in history? Or did they just rely on media spin?"
Weiss's book tells how Levitt publicized a so-called crusade against powerful auditor-consultants, who wound up getting a meaningless wrist slap. Similarly, Levitt knew about mutual funds giving kickbacks to brokerage houses but didn't do anything. Ditto for Wall Street insiders buying mutual funds at stale prices not available to small investors. He also ignored that quintessential insiders' game, the underwriting and selling of tax-free municipal bonds, so often negotiated without competitive bidding. (Remember the AAA-rated, insured San Diego ballpark bonds that went out at an amazingly high 7.66 percent interest rate and were awarded to only one firm?) Levitt "gave a bunch of speeches on the subject and scowled and knitted his brow -- and as usual, backed down," writes Weiss.
Levitt aside, this book is a fount of information. It shows how arbitration is rigged for Wall Street and against investors; how the business press mainly cranks out puff pieces; how class-action suits fatten lawyers' pockets but don't help investors; how the hedge funds are basically glorified mutual funds with offshore addresses; and how Sarbanes-Oxley, the law that supposedly protects investors, does no such thing.
Weiss also attacks companies that stifle investors' right of free expression. His major example is ZiaSun Technologies, a onetime Solana Beach company that owned a number of dot-com enterprises. That was glorious while the dot-com bubble expanded but -- well, you can guess what happened. On Internet chat rooms, investors claimed they had been hornswoggled to buy the stock by offshore boiler rooms. Some said the whole thing was a scam.
ZiaSun sued those who posted negative remarks on the Internet. A long fight ensued. Finally, there was a settlement, and the Internet posters didn't have to cough up any money. But they agreed to give up their First Amendment rights -- a perpetual gag order. They promised never to post anything negative about ZiaSun again. It "shows you how terrific a lawsuit can be when you're a company and the defendant is some poor slob who says something you don't like on the Internet," writes Weiss. There were no screams from guardians of the First Amendment.
ZiaSun charged that some of the Internet posters were in bed with short sellers betting the stock would go down. (It turned out to be a profitable bet.) "If a company makes a big fuss about short sellers, I would view that as a red flag," says Weiss. "I would avoid such companies like the plague, because history tells us that companies that engage in such conduct are more concerned with hyping their stock than making their companies succeed."
Weiss's book is relevant to your pocketbook and to San Diego. Read it.