By Jena Ardell
By Jon Campbell
By Alan Scherstuhl
By Tessa Stuart
By Roy Edroso
By Jon Campbell
By Albert Samaha
By Zachary D. Roberts
At least Lazio had what Madoff regarded as the "right" attitude about SEC enforcement. He tried to defund it. Faced with strident opposition from the commission as well as the Office of Management and Budget, Lazio, in 1999, introduced a bill to cut the fees investors paid that covered virtually the entire $340 million annual cost of running the Securities Exchange Commission. The bill was just one example—of the many tumbling out of the Vassar files—of Lazio getting his best ideas when a lobbyist sent them to him.
The New York Stock Exchange, whose chairman, Richard Grasso, was a Lazio schmoozer, actually faxed the congressman "Questions for Congressman Lazio, House Finance Subcommittee" a day before a scheduled September 28, 1999, hearing. It posed "questions which may be asked of Congressman Lazio" and suggested his "possible response." An e-mail from NYSE attorney Cecile Srodes, sent at 7:34 p.m. on September 27 to a Lazio aide, analyzed the prepared testimony the SEC had submitted for the next day, point by point. Lazio's subsequent positions at the hearing miraculously tracked the tip sheets he'd been sent.
The NYSE had orchestrated this campaign for months and was the lead signature on a July letter to Lazio, co-signed by 14 exchanges and other interested parties, praising Lazio for introducing it. Ironically dubbed the Fairness in Securities Transactions Act, the bill sought to reduce the 1/300th of 1 percent fee on stock trades to 1/500th. Though the fee in question amounts to only 33 cents on a $10,000 trade, Lazio contended at the hearing that these "excess transaction fees represent an indirect tax on investors, many of which are of modest income and modest means."
Lazio's NYSE homework assignment had suggested, "Excess transaction fee collections have grown so great that they represent an indirect tax on investors. These fees in most cases are passed on to investors, many of whom are ordinary working people."
Lazio had stuck to the script sent to him by lobbyists, almost word for word.
The NYSE's PAC gave Lazio $7,000 in three donations shortly before it sent him its script, half of its $14,000 total in Lazio donations. Lazio went to visit Grasso, who gave another $3,500 of his own money, and NYSE lobbyist Sheila Bair ($1,000) at the Stock Exchange four times, including one visit a couple of months after the hearing. Many of the other signers on NYSE's July letter, like the Chicago Board Options Exchange ($3,500) and the Securities Traders Association ($4,500), also made the obligatory bend of the wrist at the Lazio till. NYSE's Srodes, the STA's Andy Grass, the Chicago Board's Amy Zisook, and 12 other lobbyists had met with Lazio the previous February to shape the legislation. Lazio and Grasso appear on the logs together half a dozen times, including sitting next to each other at the Al Smith dinner, and with Rick ringing the bell at the Exchange.
The ties were so tight that a Lazio aide wrote him a 1997 memo reporting that he had "tipped off the NYSE" about a follow-up hearing on a "decimalization" bill another congressman was planning to hold, triggering the Exchange to "put a stop to it," the aide proudly announced.
In a self-conscious aside that was added to one NYSE memo, it's noted that a lobbyist for the opposition to the fee-reduction bill kept raising a troubling question, but the NYSE wasn't sure "whether he can get a member to ask it," suggesting that everyone onstage was a Lazio-like prop. Even with the NYSE string-pulling, however, Grasso's bill—with Lazio's name on it—was in trouble.
The SEC's James McConnell testified that the Lazio proposal would reduce the agency's funding by $2.6 billion over seven years. While conceding that the boom in the market had resulted in far more fees being collected than the agency could spend, McConnell examined revenue and cost projections and concluded that the proposal "does not ensure full and stable long-term funding for the SEC," making "shortfalls more likely." The Office of Management and Budget compared the pennies extracted by the fees with the $5 Internet charge-per-transaction at the time and wrote that the comparative meager cost of the fee "is more than outweighed by the liquidity and integrity of the U.S. securities market," which, of course, was what the SEC was duty-bound to ensure before Chris Cox ran it.
Lazio beat this drum until he left the House. The bill was finally voted out of committee in his final days, but the "tax on capital formation," as he put it, survived. Not even Tom DeLay's House saw the light.
The introduction to the Lazio archive notes that he "was instrumental in passing the Gramm-Leach-Bliley Financial Services Modernization Act of 1999," the bill that revoked the Depression-era Glass-Steagall Act and broke down the regulatory walls between commercial and investment banks.
The press reports that appeared when Lazio got both of his post-Congress jobs—as CEO and president of the Financial Services Forum and at JPMorgan Chase—used almost precisely the same language. Gramm-Leach was Lazio's calling card.
Throughout the 1997-99 debate of the bill, Lazio was a megaphone for lobbyists studying the fine print of the many iterations of the legislation that preceded its final passage. He was the only congressman who sat on both of the committees, Banking and Commerce, that considered it. Memos and a "confidential draft" laying out suggested amendment language and talking points were faxed to his office from JPMorgan, Citigroup, the Financial Services Council, the Securities Industry Association, and the American Bankers Association, all of which were clearly distinguishable from the more ordinary open letters urging Lazio to adopt their point of view. Lazio's legislative assistant met with AIG and conveyed their take on the bill, along with other issues, in a four-page note.