Five More Years?

Congress is about to rubber-stamp Arthur Levitt's reappointment. First, it should find out where he stands.

Indeed, Levitt is no Luddite when it comes to the Internet’s role in the underwriting process. The commission “has been remarkably supportive,” says Andrew Klein, chief strategist at Wit Capital, a New York online investment bank that raised more than $5 million over the Internet for several companies in its first six months of existence.

And while most of the capital raised so far this way has merely augmented traditional offerings, the SEC expects the trend eventually to go much further. “Technology is opening the door to a host of new possibilities,” says Brian Lane, director of the SEC’s division of corporate finance. “As the Internet provides a low-cost mechanism for reaching millions of buyers, it may provide greater opportunities for direct public offerings independent of intermediaries.”

Quarrel over Derivatives

Levitt’s embrace of this alternative to traditional underwriting ought to win him more praise than he usually gets from issuers. Perhaps they have been distracted by the hue and cry over his insistence on accounting standards for derivatives, which have banks inparticularly high dudgeon. Even the nation’s chief monetary guardian, Federal Reserve chairman Alan Greenspan, has publicly crossed swords with Levitt over the issue, arguing that such a change would make corporate earnings and stock prices more volatile.

But while Levitt has tried hard to parry the antiregulatory thrusts over derivatives, he has not objected to FASB’s postponement of the effective date of its new accounting rule. The official explanation is that this will give issuers more time to comply with a burdensome requirement. But Levitt may also be reacting to accusations that he has packed FASB’s overseer, the Financial Accounting Foundation, with supporters of more disclosure, compromising FASB’s independence. In a recent letter to the editor of the Wall Street Journal, Citibank chairman John Reed opined that the SEC might as well take over FASB’s rulemaking function. Similarly, brokers and other critics accused Levitt of disregarding the NASD’s independence when he strong-armed its board into accepting members from outside the industry.

Sour grapes, say Levitt’s supporters. They contend that if Levitt employed those same tactics on behalf of an agenda more to his opponents’ liking, his opponents would applaud the chairman for his effectiveness instead of criticizing him. “They just don’t like the outcome,” observes Barry Melancon, president and CEO of the American Institute of Certified Public Accountants and an outside adviser to FASB.

Says Levitt: “Congress created FASB as an independent standards setter. Public confidence is essential to that process, and public representation is essential to public confidence.”

Nonetheless, Representative Baker has introduced a bill that would mandate closer SEC oversight of FASB, subjecting its decisions to greater public accountability. Baker says he’s out to correct a flaw in FASB’s process that makes it difficult if not impossible to challenge its decisions. “Questions have arisen whether persons aggrieved by FASB pronouncements have the right to judicial review of their complaints,” he said in a statement accompanying his bill. “Congress should not have to inject itself in these controversies each time they erupt–as it has in recent years with squabbles over accounting for stock options and derivatives.”

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