When asked who the next Securities and Exchange Commission chairman should be, Manhattan District Attorney Robert Morgenthau says that the replacement for the departing Harvey Pitt should be someone with intimate knowledge of the securities industry, someone, he quipped, "like Marty Whitman."
Morgenthau was referring to his host at the investment management conference in New York on November 6--Martin J. Whitman, the chairman of Third Avenue Management LLC and long-time manager of the Third Avenue Value Fund. Whitman, who has for decades followed his uniquely successful approach to tax efficient value investing, was quick to decline the endorsement. But the mood at the meeting was clearly one of anticipation: with the recent history of corporate scandals and Wall Street complicity in those scandals, a desire for a level playing field was palpable.
Morgenthau became Manhattan D.A. in 1975 and built his reputation partly on the basis of some high-profile white-collar investigations of corruption in the securities business. In fact, he says that one of his major priorities as D.A. has always been to make New York a safe place to invest, and in his speech he lauded a former staffer of his--now New York State Attorney General Eliot Spitzer--for his efforts in exposing the continued conflicts of interest on between Wall Street research analysts and investment bankers.
In speaking of the corporate scandals, Morgenthau argued that the moral of the Tyco story is that "the system of checks and balances has broken down" and that corporate America's "whole attitude must be changed." He reserved special criticism for those American corporations that have domiciled overseas, particularly in the Caribbean, in order to avoid paying taxes. His office has had some success in gaining the cooperation of authorities in the islands of Guernsey and Jersey to move against corporations that seek to hide from U.S. taxes by domiciling there, but noted that he has had much less success in the Caribbean, especially in the Cayman Islands.
As for Whitman, his take on the scandal is that it is a natural outgrowth of "40 to 50 years of ceding power from the stockholders to the boards of directors" of corporations. And in his inimitable style, he pointed out that if investors "are dependent on the business smarts of directors; lots of luck." As for his own investing style, Whitman warned against focusing too much on a stock's price: "The price of a security is always wrong; it doesn't tell you how good or bad management is."