Wednesday, October 31, 2007

Carlyle's Arthur Pontificates from the Roundtable

Former SEC Chair and Carlyle Group advisor Arthur Levitt, Jr. had much to say on the state of pension funds at a recent meeting. The New York Times lauded his father's saving the New York state pension fund when nearly bankrupt New York City wanted to get their hands on that money. Arthur's father saved the day. The son tried riding a similar horse on behalf of The Carlyle Group, but clearly got bucked from my viewpoint.

The SEC works to make security trading open and free of conflicts. The abuses of Arthur's days in office led to Enron and WorldCom. Yet the Bush administration works diligently to jettison those reforms, as Arthur lectured the pension world on transparency and accountability.

After Mr. Levitt's retirement, a non-public investment vehicle boomed, his current employer in the form of private equity. These firms have no public obligations. Recall Blackwater CEO Eric Prince's recent comments before a Congressional Committee when asked about profits from $1 billion in federal contracts.

"We're a private company, and there's a key word there -- private," Prince answered.

That's who Arthur Levitt works for, a private, private equity firm. But the ex-SEC Chief eloquently called for reform. He said New York’s pension woes were just the latest in a series of scandals at public funds all over the country. The New York fund is under an inquiry focusing on whether associates of New York State’s most recent former comptroller, Alan G. Hevesi, improperly benefited from his sole direction of the $156 billion fund, the nation’s second largest.

Let me hazard a guess? Was Mr. Hevesi paid based on performance? Incentive pay in bonuses and stock options provided the impetus for Enron's Ken Lay and WorldCom's Bernie Ebbers to fabricate revenues and profits. In their twelve year history stock options caused some 30% of executives at publicly traded companies to backdate those same options to maximize their compensation, most in violation of company policy. That's cheating under the SEC rules Mr. Levitt once enforced.

This is what gets my goat. Arthur Levitt speaks from a parallel system with less monitoring than public pension funds. The Carlyle Group wants access to those billions in pension investments. It would use the money to buy companies that do significant government business, then use their stellar connections of ex-government insiders to get milk greater profits from the federal tit.

Health care-26 companies including MultiPlan, LifeCare, ManorCare
Military & Aeropsace-21 companies including USIS, QineticQ, United Defense
Tech & Business Services-96 companies including Authentec, FRS Global and Wall Street Institute
Telecom & Media-33 companies including Nielsen Media
Energy & Power-34 companies including Kinder Morgan & Titan Specialties
Automotive & Transportation-16 companies including Hertz & Allison Transmissions

There's more as Carlyle started an infrastructure division ready to meet government's every need for transportation, water, even sewage.

Mr. Levitt noted in his talk, “We can’t begin to improve the fiscal standing of public pension funds until we can accurately assess their financial health.” The door swings both ways, Arthur. How can the public expect improvement of government services if contractors can't or won't accurately report their financial and operating positions?