“A dollar spent on educating investors is far more useful than a dollar spent on regulations,” said Arthur Levitt, former chairman of the Securities and Exchange Commission, at a lecture last night in Hale Auditorium. Levitt’s speech focused on three factors critical to creating a fair marketplace for investors: investor education, proper regulation of business practices and adequate dissemination of information.
Levitt said the financial market is full of traps due to the lack of adequate and accurate information available to the public, which could better prepare investors.
Levitt added that the knowledge investors currently hold about the stock market is inadequate and the misleading market information financial statements prepared by accounting firms provided.
“They didn’t talk about trust, about accuracy, about commitment. They talked in a language that was almost mystical,” he said. “Investors should prepare to spend time to read financial statements and newspapers and understand investments.”
The recommendations given by investment firms are not always accurate because the ratings are not always backed up by the real financial situation of the firm, Levitt said.
“They will assure you that it’s not a selling recommendation in return for the information that’s not available to the public,” Levitt said.
Many malpractices of the accounting firms and research firms have hurt the interest of investors and are one of the factors that caused the scandals like Enron and WorldCom, he added.
Although the SEC is responsible for protecting investors and maintains the integrity of the securities markets, Levitt said that during his tenure there was fierce resistance to the reforms proposed by the SEC from corporate lobbyists.
At one time, Levitt said he was told by executives at accounting firms that regulations he was proposing “would mean war. We were threatened, literally the lifeline of the commission was threatened,” he added.
Addressing recent accounting scandals, Levitt said, “there’ll always be scandals, but I don’t think you’ll have quite as many as we’ve seen recently and the SEC with its resources is clearly going to spend a major part of its time going after frauds in the markets.”
President Bush’s budget for fiscal year of 2004 is providing the SEC with $841.5 million – up 92 percent from $438 million in the previous fiscal year. Levitt said he believes the extra money will allow the SEC to do more for the nation with “more lawyers, more accountants and more resources.”
Students found Levitt’s talk useful because it reminded the public about the importance of educating themselves and shed light on the problems that are entangling corporate America. “I think educating investors is the most important thing,” LSA senior Jason Gilbert said.
Levitt was chairman of the SEC from 1993 to 2001, which was the longest tenure for a chairman of the commission. He said his tenure was “eight years of the most exciting and productive years years of my life.”