In 1986, Arthur Levitt Jr., then 55, made his motion-picture debut. He was cast as a Patriot in Sweet Liberty, a comedy about the making of a movie on the American Revolution, starring Alan Alda.
Alda played a dusty college professor whose career takes an unexpected turn when his book about the historic events is made into a Hollywood movie. Levitt's big moment came as an extra on location in a small collage town.
The American Patriots were standing in formation facing the British Redcoats in a big battle scene. With cameras rolling, the Redcoats opened fire, fatally wounding a Patriot. The Patriot collapsed, releasing a half-animal scream.
That was the living voice of Levitt, then the chairman of the American Stock Exchange, now the debonair public servant who this month starts his second term as chairman of the Securities and Exchange Commission.
By most accounts, Levitt is a lousy actor.
"He played the part [in Sweet Liberty] of somebody overacting," recalled Alda, a personal friend and tennis partner of Levitt's since their first meeting, years before on a summer vacation. "He was particularly well suited for the role."
By other accounts, Levitt is a first-rate politician.
"He's a builder, a deal maker and a very good manager," said former SEC Commissioner Richard Roberts, who served under Levitt before stepping down in August 1995.
Roberts, now an attorney at Reid & Priest in Washington, said Levitt had a teamwork approach, but made it clear who was the leader.
After an industry agreement was reached in 1994 to ban "pay-to-play" political contributions by large underwriters in exchange for lucrative municipal-bond business, Thomas A. Russo, chief legal officer at New York-based Lehman Brothers, remarked on Levitt's ability "to get everyone together in the same room and behind a proposal."
"He's a macro rather than a micro person," added Edward Fleischman, an SEC Commissioner from 1986 to 1992, just before Levitt took office, and now an attorney at Linklaters & Paines in New York. "He relies a lot on staff advice for the micro decisions. On the macro issues though, he's his own man."
"Someone like me, with views that were not considered traditional at the agency, not only got a fair hearing, but ultimately won the day in many cases," recalled Steven Wallman, an SEC Commissioner under Levitt from 1994 to 1997.
"If you wanted to have the opportunity to discuss something [with Levitt], he was always there," added Wallman, now a senior fellow at the Brookings Institution. "There was never, I don't want to talk about something' or I don't have time.' The time would always be made available."
Indeed, Levitt's time may break records. He will make history by becoming the longest-serving SEC chairman even before he completes his new five-year term, which expires on June 5, 2003. But how history will judge Levitt is a matter of some debate.
Protecting the investing public is a priority for Levitt, and investor groups generally applaud his efforts. Levitt waged war on shady dealings in the bond markets and indirectly confronted the Mafia on small-cap fraud.
At the same time, he remains seemingly unflappable as some market makers accuse him of conspiring to destroy the dealer market.
What to make of the conspiracy theory? "I've heard it very often," Fleischman said. "I just can't tell whether there's any element of truth in that theory."
"Arthur Levitt is a creature of floor-based stock exchanges," said Junius Peake, a professor of finance at the University of Northern Colorado and a former governor of the National Association of Securities Dealers. "He is more comfortable with that than with the idea of electronics."
Fleischman agrees. "Yes, he was identified with the auction markets. Beyond that, it's nothing you or I will ever really know," he said. "You could be very empathetic to the dealer market and still take the positions he has taken."
One Nasdaq trader maintains that Levitt's lack of career experience in the dealer market hinders his judgment. "I think it's simply a matter of not understanding the multiple-dealer system very well," the trader said, on condition of anonymity. "[Levitt] thinks in terms of the auction market. That's what he thinks about when he gets up every morning."
Indeed, Peake wonders if the barrage of new rules for equity trading under Levitt is necessary. "If all you're going to do is put your nose to the grindstone," Peake said, "you'll see nothing but sparks in front of your nose."
This much is not in dispute, however: under Levitt's watch, profitability on dealer desks has declined rapidly as a direct result of SEC-approved trading rules
"If you look at the gross margins among the wholesalers," said Tony Cecin, head Nasdaq trader at Piper Jaffray in Minneapolis, "you'll see that margins are down dramatically even with the higher volume of transactions done."
Notwithstanding the reported decline in overall market-making profitability, many industry experts stress that market making is still more lucrative today than several years ago. "There are more market makers than just a few years ago," said Roberts, "and market-maker profits last year were at an all-time high."
Still, suspicions of a strong, Levitt anti-dealer bias have been raised by traders since the SEC's massive shakeup of Nasdaq in 1997.
When an independent panel headed by Warren Rudman, a former U.S. senator, issued its final report in 1995, the NASD quickly adopted many of its recommendations. At stake, of course, were serious concerns about price-fixing among market makers, stirred in part by an academic study published by William Christie of Vanderbilt University and Paul Schultz of Ohio State University.
The committee's findings were not enough for Levitt, who launched a separate SEC probe that resulted in the order handling rules. Wallman strongly defended Levitt's record, saying that if the SEC did not act, "the Justice Department or a federal judge would have done so."
As Levitt begins his second term as SEC chairman, that fleeting image of Levitt sprawled on the battlefield in Sweet Liberty would probably get a standing ovation from some in the broker-dealer community.
"He's a very good man, but too loyal to his [ill-informed] advisers," said Meyer Berman, who heads up an equity-trading firm in Florida. "The one time I saw him [at an industry meeting], he had four people around him, like I was going to bite him or something."
Levitt was born and raised in a middle-class Brooklyn neighborhood, the only child of Dorothy and Arthur Levitt Sr. His mother was a schoolteacher, and his father rose through Democratic reform circles to become a major political figure in New York state.
The younger Levitt attended Brooklyn's prestigious Poly Prep School, where he demonstrated a flair for journalism as editor-in-chief of Polygon, the school newspaper. He graduated phi beta kappa in 1952 from Williams College in Massachusetts, majoring in English.
After two years in the U.S. Air Force followed by a stint as a drama critic for the Berkshire Eagle in Massachusetts, Levitt returned to New York and spent five years in marketing at Time Inc., before moving to Kansas City to sell cattle as a tax shelter for Oppenheimer Industries.
It was not exactly a conventional career path from Brooklyn to the canyons of Wall Street, but it suited Levitt just the same. By 1962, he brushed off the trail dust and began looking for work in the securities industry in New York.
Levitt landed at two-year-old brokerage firm Carter, Berlind & Weill. The career move was auspicious. In 1967, Levitt was named a partner and his name appeared atop the stationary in the reorganized firm of Cogan, Berlind, Weill & Levitt.
The upstart firm (dubbed Corned Beef With Lettuce by competitors as a play on its abbreviation, CBWL) soon embarked on an acquisition spree guided by legendary dealmaker and firm partner Sanford Weill, now chairman of financial giant Travelers Group. Cogan, Berlind, Weill & Levitt was the predecessor firm of Shearson Hayden Stone, one of Wall Street's top brokerages in the mid-1970s.
One of Levitt's roles during that heady period was to lure top-producing retail brokers to bolster his firm's prestige and bottom-line results. Levitt had a reputation as a decent man. It helped, of course, that his father was comptroller of New York state from 1955 to 1978, and known to some as Mr. Integrity.
A prudent custodian of the public's money, untouched in the public eye by scandal and well-liked among peers, the elder Levitt loomed large over the political and financial landscape. On Wall Street and in Albany, the name opened doors and inspired confidence in the younger Levitt. Along with a good name, Levitt inherited from his father a politician's instinct for dealing with people. Friends say Levitt has an extraordinary talent for remembering names and faces, and for making influential friendships. (NASD Chairman Frank Zarb is a longtime friend.)
At Cogan, Berlind, Weill & Levitt, he made introductions and brought people together, hosting lunches and dinners. This contributed enormously to the merger efforts of Weill, Levitt's acquaintances say. Most importantly, it helped Levitt engineer a career switch in 1977 when he was in his mid-40s, financially comfortable but still highly ambitious.
In 1977, Levitt decided to accept an offer to head the AMEX. Reversing the slow decline of the Curb Exchange turned out to be as tough as it looked. When Levitt left in 1989, the AMEX was still struggling to keep its listed companies on board, though daily volume had risen modestly from 4.9 million shares traded in 1978 to 9.9 million, boosted in part by the lucrative trading of index options.
Levitt demonstrated a populist style of leadership, said Kenneth Liebler, president of the AMEX under Levitt.
"In ten years, we never went to the board and got surprised," he said. "He was straightforward as could be, someone whose integrity and business acumen were beyond reproach."
As the AMEX chairman, Levitt was a visible public figure on Wall Street and in Washington. In 1981 he established the American Business Conference, a lobbying group for mid-sized companies, typically the kind listed on his exchange. As head of the conference, Levitt arranged hearings on Capitol Hill, set up conferences for chief executives and government officials, and forged a network of relationships among Washington's movers and shakers. While still at the AMEX in 1986, Levitt branched out in a direction harkening back to his early love of journalism.
Having made unsuccessful bids to buy the Daily News and Village Voice in New York, and The New Republic among others, he acquired Roll Call the off-beat Capitol Hill newspaper for nearly $500,000. Levitt assembled an experienced team, invested cash and pushed hard for new advertisement sales (with pitches to his Wall Street and corporate contacts).
What emerged was an entertaining mix of serious journalism (Roll Call broke the congressional check-bouncing scandal in 1992) personality profiles and offbeat stories, like pieces on politicians' pets (a favorite of Levitt's). Readership, revenues and visibility grew at a rapid pace. Curiously enough, Levitt's SEC office in Washington dismissed Traders Magazine's request for a personality interview with Levitt.
"Mr. Levitt is not big on these kinds of pieces," said Chris Ullman, director of public affairs at the SEC. Levitt, however, enjoyed publishing personality profiles of other public figures in Roll Call.
"It has been a passion, not just a cash-flow investment," Levitt said in 1993, the year he divested of his ownership stake in Roll Call. That labor of love produced an eye-popping return: The Economist paid a reported $15 million for Roll Call.
At home, Levitt played the doting father. He and his wife, Marilyn Blauner, who taught psychiatry at New York University's medical school before joining the faculty at George Washington University, have two children Laurie and Arthur III, the former president of the privately-owned Hard Rock Cafe
Levitt is an avid photographer, and the prints that line his office walls include the striking photo of Laurie that accompanied her 1986 engagement announcement in The New York Times. He is an even more avid outdoorsman, passionate about mountain-climbing, deep-water fishing and the annual back-to-nature jaunts arranged through the Colorado-based organization, Outward Bound.
His outdoor activities and constant networking have happily overlapped. Many of Wall Street's top honchos have spent long days sailing the Atlantic with Levitt on one of his large boats. Ever the macro guy, Levitt does not focus on the minutiae of navigation, fuel consumption and the like. Probably as a result, some seafarers experienced unforeseen excitement when he sank a 55-foot boat in Long Island Sound.
The fishing parties are mild adventures, however, compared to the Outward Bound expeditions. When he was at the AMEX, Levitt brought along floor traders, exchange directors and the chief executives of listed companies on the trips.
Later he included members of Congress and the Cabinet, educators, entrepreneurs, even journalists. Levitt was convinced that the outings improved communication and understanding among people of different backgrounds and opinions.
William S. Reed, a former vice president at Williams College, remembers a telephone call from Levitt one day.
"Will," Reed recalls Levitt telling him, "I'm going to give you an experience that will change your life. Will you join me and 15 friends on a ten-day Outward Bound trip? We're going to kayak down the Green River in Utah."
Reed went along, and during the trip saw a sharp contrast to Levitt's usual no-nonsense demeanor. "He was relaxed, playful and adventurous," Reed said in the Williams College alumni magazine. "He has a fear of heights, but nonetheless led a day of rock climbing and rappelling."
Levitt, according to Reed, is "the type of person who is comfortable with a certain amount of danger."
Sen. Larry Pressler (R-S.D.) accepted an invitation from Levitt to go horseback riding, and spent eight days in the saddle. "He never gives anyone any warning about how tough something is going to be," Pressler said.
Levitt's nomination as SEC chairman in the spring of 1993 was greeted with skepticism in some circles. After all, Levitt wasn't a certified Friend of Bill, and in the past had made donations to both Republicans and Democrats (though he was hardly the only well-heeled Wall Streeter to do so). In the summer of 1992, however, he co-chaired a Clinton dinner in New York, raising $3.5 million. That may have helped Levitt's bid for the top spot at the SEC. As to possible conflicts with his many ties to Wall Street, Treasury Secretary (and ex-Wall Streeter) Robert Rubin predicted at the time of Levitt's nomination, "I think Arthur won't have any problem in that respect."
Levitt was sworn in as the SEC's 25th chairman in June 1993, taking over for Richard C. Breedan, a Republican appointee. Levitt inherited a probing review of the U.S. markets. The staff report, Market 2000, came out later in 1993, and the new chairman accurately predicted it would have "something for everyone to dislike."
Levitt has a taste for the good life: first-class air travel, the best hotels, three-star restaurants. His penchant for creature comforts once upset a legislator who protested when Levitt flew first class rather than coach on SEC business. As it turned out, Levitt paid the excess amount over the commercial fare covered by the SEC travel budget.
Levitt butted heads with other legislators. Sen. Phil Gramm (R-Texas) hinted last October that he would consider withholding his support for Levitt's renomination after Levitt attacked Congress for "second-guessing" both the SEC and the Financial Accounting Standards Board (FASB) for proposing new derivative-disclosure requirements. "If anybody is intervening, tampering or being heavy-handed in this process, it's Arthur Levitt," Gramm snapped in October.
Moreover, Levitt replaced directors of the independent FASB which issues corporate-account rules with his own lieutenants, provoking furious criticism. "It was heavy-handed," Levitt later conceded, "and it was a mistake."
Levitt's efforts to turn the SEC into a self-funding agency, independent of congressional budgetmakers, was rebuked. Later, however, the SEC approved a measure extending 31(a) transaction fees on Nasdaq transactions, which indirectly funds the SEC's annual budget. Overall annual fees now levied by the SEC are well in excess of its $300 million operating budget.
To be sure, many market makers are unsettled by Levitt.
"Market makers would tell you off the record," said one trader, "that he makes a big show, but he doesn't have any respect for our opinions." Berman urged Levitt to spend more time considering proposals before passing rules that hurt market making. "The SEC has to start examining things before they do them," he said.
Perhaps Levitt is unconventional?
Soon after Levitt was nominated for the SEC chair in 1993, his movie friend Alda remarked how Levitt's unorthodox style of tennis said a lot about him. "He doesn't hold the racket the way other people do. He loves to win, and he makes the point. But you wouldn't have expected it."
