SEC seeks probe of chief's actions


Published: Friday, November 1, 2002 at 6:01 a.m.
Last Modified: Friday, November 1, 2002 at 12:15 a.m.
WASHINGTON - The Securities and Exchange Commission ordered an investigation Thursday into allegations that Chairman Harvey Pitt concealed from commissioners information on the corporate ties of William Webster, his choice to head a new accounting oversight board.
The disclosure once again thrusts Pitt in the middle of a political maelstrom, even as the Bush administration seeks to restore investor and consumer confidence in the roller-coaster markets just days before the midterm elections.
Publicly, the administration strongly backed Pitt.
"Chairman Pitt has done a good job in cracking down on corporate wrongdoing and the SEC has a very strong record under his leadership," said White House spokeswoman Claire Buchan. "We support him."
At the same time, White House spokesman Scott McClellan acknowledged, "We don't have all the facts."
SEC spokeswoman Christi Harlan said the agency's inspector general, Walter Stachnik, would conduct the internal investigation. Pitt and other commissioners requested the probe.
"This is simply a look at the process and it is not a review of Judge Webster," Harlan said. SEC spokesman John Heine insisted it was not an investigation of Pitt either.
Neither Pitt nor Webster returned repeated calls for comment.
The accounting oversight board was created in the wake of the accounting scandals that led to the downfall of Enron and other large corporations.
Top Democrats, seeking to paint President Bush as an ally of big business and not corporate responsibility, renewed calls for Pitt's resignation just 14 months after he took the job.
"Mr. Pitt not only deprived his fellow commissioners of vital information about one of the most important appointments they would ever make, he knowingly endorsed a candidate for chairman of the accounting oversight board without seriously investigating the matter," said House Democratic leader Dick Gephardt of Missouri. "I again urge President Bush to ask Harvey Pitt to step aside from his post today."
"President Bush made this unfortunate appointment. He should fire him," Rep. Ed Markey, D-Mass., said of Pitt.
Senate Banking Committee Chairman Paul Sarbanes, D-Md., and Democratic Reps. John Dingell of Michigan and Barney Frank of Massachusetts asked the General Accounting Office, Congress' watchdog arm, to investigate Pitt's actions. Sarbanes also said he would hold hearings on the matter when Congress returns for its lame duck session next month.
"The public has lost confidence in the chairman," Sarbanes said.
The SEC voted 3-2 along partisan lines last Friday to approve Webster's appointment as head of the accounting oversight board. The commission's two Democrats had supported another candidate, pension fund administrator John H. Biggs; they believed Biggs would advocate tough regulation of the accounting industry.
Harlan at the SEC said that in the course of the selection process, Webster told the staff about his role as lead of the auditing committee for U.S. Technologies, a company facing investor lawsuits alleging fraud.
"The staff reviewed the situation and identified nothing of concern regarding that service," she said.
In an interview with The New York Times, Webster said he had told Pitt about the U.S. Technologies link.
"I told them that people are making accusations," Webster told the newspaper. "I said if this is a problem, then maybe we shouldn't go forward."
He said Pitt assured him SEC staff had looked into the issue and it would not pose a problem.
U.S. Technologies' former accounting firm, other auditing committee members, company executives and investors told the Times no one at the commission contacted them about Webster's appointment.
Webster said he called Pitt again Monday, three days after he was appointed, saying he had heard over the weekend that the government had begun to investigate possible fraud by U.S. Technologies' chief executive, C. Gregory Earls.
Pitt did not tell other commissioners about Monday's conversation either, SEC officials told the Times.
"I think it's real unfortunate that this was not disclosed prior to the vote, said Paul R. Brown, head of the accounting department at New York University's Stern School of Business. ". . . We're not sure whether it would have made a difference, but we do know that it would have led to substantially in-depth questioning."
Analysts said it was unlikely Webster's appointment would be overturned.
"The question is Mr. Pitt's ability to survive," said John Coffee, a Columbia University law professor who specializes in securities fraud. "It's not the only crisis that involves questions about his candor and judgment."
A lawyer for Sommerville Trust, a shareholder suing a U.S. Technologies subsidiary for alleged misdeeds, said Webster is not suspected of any involvement - despite his approval of the firing of the company's auditors when they found the problems with the books.
"There is no possible way he (Webster) thought what he was doing was a cover up. It's literally impossible," said lawyer Stanley S. Arkin.
Pitt was the leading advocate of Webster - a former director of the CIA and FBI and a former federal judge. The SEC chief had been accused of playing politics with the decision.
"I am fiercely independent. I am beholden to no one," Pitt said in an emotional address to the commissioners Friday as he pushed Webster's selection.
Pitt has come under fire for his ties to the accounting industry at a time that the SEC is investigating major accounting fraud at big corporations. Before joining the SEC, he was a private securities lawyer representing Wall Street's big players and all Big Five accounting firms.

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