Thomas Peterffy's Omission

Over the past few weeks, a gent named Thomas Peterffy has been bombarding the airwaves with a television commercial in which he says as follows:

America's wealth comes from the efforts of people striving for success. Take away their incentive with badmouthing success and you take away the wealth that helps us take care of the needy. Yes, in socialism the rich will be poorer. But the poor will also be poorer. People will lose interest in really working hard and creating jobs. I think this is a very slippery slope. It seems like people don't learn from the past. That's why I'm voting Republican and putting this ad on television.

This ad is more than just a simple-minded, intellectually dishonest exercise in sophistry, equating concern about income inequality with advocacy of "socialism." It's also incomplete, in that Peterffy does not disclose how he is able to afford running a shrill, dishonest TV ad.

He is able to do so because of the very party that he is fighting against.

Peterffy is founder and CEO of Interactive Brokers, a publicly traded firm that is in the options trading business. The company's most recent 10-K annual report observes as follows:

The advent of electronic exchanges in the last 21 years has provided us with the opportunity to integrate our software with an increasing number of exchanges and trading venues into one automatically functioning, computerized platform that requires minimal human intervention. Three decades of developing our automated market making platform and our automation of many middle and back office functions has allowed us to become one of the lowest cost providers of broker-dealer services and significantly increase the volume of trades we handle.

In other words, Peterffy made his fortune largely because of Democratic policies favoring electronic trading--especially the policies of the Securities and Exchange Commission under Democratic president Bill Clinton.

Institutional Investor pointed out in a 2005 profile that Peterffy was close to Bill Clinton's deregulation-loving SEC chairman Arthur Levitt, who was an outspoken advocate of electronic trading.

II says that "after Peterffy demonstrated his system to then-­SEC chairman Arthur Levitt Jr. in 1999, the agency became convinced that U.S. options exchanges could link electronically to ensure that investors would always receive the best available prices. The SEC soon mandated such a linkage. Peterffy pressured exchanges that resisted moving from floor trading to automated execution. 

"Timber Hill [Peterffy's firm] quickly became one of the biggest market makers on the all-electronic International Securities Exchange when it debuted five years ago [in 2000]. "

That's a far cry from the image Peterffy paints of himself as a John Galt-like, regulation-hating capitalist. 

He looks like a crony capitalist to me. And a first-class hypocrite to boot.

© 2012 Gary Weiss. All rights reserved.
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My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter: @gary_weiss
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How to Make the SEC Even Worse

Another brilliant idea from Mary Schapiro

In Portfolio.com today I have a suggestion on how to make the SEC even worse than it is: merge it with the Commodities Futures Trading Commission.

The idea is backed by the SEC's wretched chairman, Mary Schapiro, and by former chairman Artie Levitt. With these two geniuses favoring the move, how can it go right?

Levitt, of course, was the one who helped Alan Greenspan and his other pals sabotage the CFTC's effort to regulate OTC derivatives in the late 1990s. He has now graduated to become a consultant to Goldman Sachs. The man has no shame.

© 2010 Gary Weiss. All rights reserved.

Bernie Madoff Speaks! (and lies) While Arthur Levitt's Memory Fails Him

Notes of Bernie Madoff's interview with the SEC inspector general were released yesterday, and they make fascinating reading--as long as you keep in mind that Madoff was lying through his teeth, primarily to protect people.

Here's the SEC exhibits page, and here (PDF) is the record of Madoff's interview.

You can be sure that Madoff was lying because of this:

When questioned as to whether he was concerned about Frank DiPascali giving testimony, Madoff answered,"No, he didn't know anything was wrong, either."

In fact, DiPascali, who was Madoff's number two man, has already pleaded guilty, and at the time of his plea in August he said as follows:

“I knew I was participating in a fraudulent scheme,” DiPascali told U.S. District Judge Richard Sullivan. “I knew everything I did was wrong, and it was criminal, and I did it knowingly and willfully. I accept complete responsibility for what I did. I apologize to every victim and to my family and the government. I am very, very, very sorry.”

This is the clearest example I can find of Madoff lying to government officials during the period following his arrest.

However, I'm less dubious about Madoff's statements about how tight he was with former SEC officials and commissioners. Madoff said the following about the super-hyped ex-SEC chairman Arthur Levitt:

Madoff stated that he knew Levitt at Amex, before he was at the SEC, and stated that he knew Levitt "very well." Madoff stated that he went to lunch with Levitt once, to complain to Levitt that he "had to do something about intemet stocks." Madoff stated that Levitt subsequently "went on t.v. and gave a warning about it."

In his interview, Levitt tried hard to convey the impression that he didn't know Madoff from a hole in the ground, though his response was... well, let's call it a "lawyer's response." His memory has failed him when it comes to Madoff, poor dear, preventing him from giving an unequivocal answer:

Mr. Levitt stated that he met Bernard Madoff on an infrequent basis while he was Chairman of the SEC, mostly at seminars or outside functions. He approximated that he saw Mr. Madoff once a year while he was the Chairman of the SEC. He did not recall having lunch with Mr. Madoff and did not believe he ever met with Mr. Madoff alone. Mr. Levitt stated he did not have a personal friendship with Mr. Madoff, had never socialized with him, and did not know his family, other than having met Bernard Madoffs brother.

Note what I've put in boldface italics. He approximated, he did not recall, he did not believe.That's my Artie! The Investor's Champion, to quote a puff piece that I'm ashamed to say once appeared in my alma mater, BusinessWeek.

Yes indeed, you can rest assured that Artie Levitt was no pal of Bernie Madoff (that being an approximation and belief to the best of his recollection).

© 2009 Gary Weiss. All rights reserved.

What 'Advice' Will Artie Levitt Give Goldman Sachs?

I've been scratching my head today --- and I don't advise it, as it causes a sore -- trying to figure out the kind of "advice" that Goldman Sachs is going to get from its new "advisor," the overrated former chairman of the SEC, Arthur Levitt.

Why would anyone want "advice" from an Arthur Levitt? I was stumped, I must say. But then a couple of thoughts that come to mind about Levitt's new gig:

• Gratitude. Goldman and the rest of the Street owe Levitt, bigtime. When he was chairman of the SEC, the agency did absolutely nothing to regulate derivatives or hedge funds, did nothing to rein in executive compensation, took only tepid steps to curb brokerage sales practices. In general, you name it, Artie didn't do it.
• Fig leaf. The Reuters story says that Levitt will "provide Goldman with strategic advice in a number of areas, namely public policy." OK, there's a clue. He has an undeserved reputation as an "investor advocate," as I detailed in Wall Street Versus America. So I suppose Goldman can use Levitt as a fig leaf for whatever policies it favors that are contrary to the public interest.

But perhaps most of all:

• Doubletalk. As Francine McKenna explained in Huffington Post a couple of months ago, Artie is an expert at talking out of two, sometimes more sides of his mouth. Her focus was on the great job Artie in a similar role at AIG.

McKenna had pertinent questions:

Why did Levitt go to work for AIG again in 2007 after his stint there in 2005? Why did he help paper over their decision at the end of 2007 to re-appoint PricewaterhouseCoopers as their auditor, even after all of the messes PwC has presided over, been sued over and settled over, looked the other way on, and acted on only when forced by threat of more litigation?

Arthur Levitt and his AIG auditor selection committee didn't fire incorrigible but complicit PwC at the end of 2007. They reappointed them so PwC could stay close and no other firm get closer once the investigations for 2007 activities started. It wasn't long before the Department of Justice asked the SEC to turn over evidence as part of a criminal investigation of whether the material weaknesses in internal control cited by PwC in February 2008 were part of a fraud, one that their auditors didn't "detect" until the subprime crisis heat was on.

PricewaterhouseCoopers earned over $120 million dollars as AIG's auditor and tax advisor in 2007. Why is there no outrage by Mr. Levitt and the press over that outrageous waste of shareholders money?

Why? Because Artie was being Artie. That's why. I'd say Goldman Sachs made a brilliant move.

© 2009 Gary Weiss. All rights reserved.

News Flash: Chris Cox Makes it Unanimous

Ever the consummate politician, SEC chairman Chris Cox admitted tonight that yes, it does get dark when the sun goes down; yes, water is wet; and yes, the SEC screwed the pooch on Bernie Madoff.

I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them. Moreover, a consequence of the failure to seek a formal order of investigation from the Commission is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm.

Poor dear, being "gravely concerned" and all that, particularly since this is an SEC chairman who single-handedly emasculated his own enforcement staff. Oh yes, there would have been a formal investigation launched, and action taken. Yessir! What a joke. Madoff is a psychopath, but at least he is keeping his mouth shut. Chris Cox should follow his example.

There will probably be an effort now to shift the blame to underlings, or back to Artie Levitt perhaps, but this fish rots from the head down. Enough already.

Oh please won't you go now, Mr. Chairman, and not let the door hit you on the way out?

© 2008 Gary Weiss. All rights reserved.

Bernard Madoff Was an 'Admirer' of Arthur Levitt's SEC (and no wonder....)

In my last item I discussed how former SEC chairman Artie Levitt was vigorously protesting what I think is pretty obvious to everybody, which is that the SEC -- including Artie's SEC -- screwed the pooch when it come to discovering Bernie Made-Off's Ponzi scheme.

But now it appears that what we had was something of a mutual admiration society. Madoff, it seems, was an "admirer" of Levitt's -- which makes perfect sense. Hey, if you were getting away with murder, wouldn't you admire the dufus who let you do it?

A reader reminded me about this puff piece that appeared in Business Week in 2000, just as Levitt was leaving the SEC, as Artie was taking what Michael Lewis was to describe as a "victory lap" of admiring media attention such as the BW article. At issue was a completely inconsequential proposal for a "central limit order book," which is as trivial as it sounds and which Levitt was focusing upon as he ignored far more significant issues.

The BW article says:

For markets and brokers, "this is a life-and-death debate," Levitt says. He maintains that he hasn't made up his mind. But his public remarks emphasize the risks of fragmented trading over the advantages of market competition. That worries Schwab and other advocates of market-driven linkages. Even Levitt's admirers say he should slow down: "I'd hate for him to take [the competition] back a step by overreacting," says Bernard L. Madoff of stock wholesaler Bernard L. Madoff Investment Securities.

"Life or death debate." Yeah, right. Because of the SEC's nonfeasance under Levitt, the oafish Harvey Pitt and his incompetent successor Chris Cox, untold numbers of investors and philanthropies have been hacked to financial death by investing with Artie Levitt's "admirer".

UPDATE: Politico reports that Bernie was buying influence in Washington via the lobbying firm of Dow Lohnes.

As shown by public records, D-L also represents the corporate crime poster child Overstock.com in its jihad to waste regulator resources on the naked shorting hobgoblin. According to OpenSecrets.org, the cash-starved Internet retailer wasted $180,000 pushing Overstock CEO Patrick Byrne's paranoid fantasies.

As a result, regulators were so busy chasing down Byrne's imaginary demons that they neglected to properly investigate Artie Levitt's admirer and his real-life depredations.

© 2008 Gary Weiss. All rights reserved.