If the political pundits were writing the script, Harvey Pitt wouldresign from the
Securities and Exchange Commission
the day after Election Day.
The embattled SEC chairman would quietly slip town without causing further political damage to the White House on the eve of the midterm elections. And Pitt would go back to doing what he seems best suited for -- practicing law and earning big bucks aggressively defending the accounting industry.
But since the pundits aren't calling the shots, don't be surprised if Pitt hangs onto his job even as the calls for his head mount on Capitol Hill.
"I think he will remain chairman for the foreseeable future," saidRichard Roberts, a former SEC commissioner and partner with Thelen Reid & Priest in Washington, D.C. "That's his nature and President Bush is a very loyal person."
That's not the only reason. If this hard-nosed litigator has proven anything during his tumultuous tenure, it's that he has a tin ear when it comes to reading the mood of the investing public. Resigning might make too much sense.
Indeed, too often, Pitt -- intentionally or not -- has given theappearance that he cares more about his friends in the accountingprofession than fighting for the rights of investors on Main Street. It's an appearance that harkens back to Pitt's first speech as SEC chairman, when he spoke of wanting to create an agency that was a "kinder and gentler place for accountants."
That speech -- delivered just weeks before
imploded --unnerved a lot of investor advocates, especially because Pitt had made lots of money in private practice defending accounting firms in cases before the SEC.
And Pitt has done nothing to dispel that image of being too cozy with the nation's accountants with his questionable handling of William Webster's appointment to a new accounting industry oversight board.
The latest controversy involves Pitt's decision not to inform the other SEC commissioners that Webster, a former federal judge, served on the audit committee of
, a financially troubled company that's facing fraud accusations.
Pitt's decision to withhold the information may have influenced theoutcome of the SEC's divided 3-2 vote a week ago in favor of Webster. Pitt and the other two Republicans on the commission backed Webster, while the Democrats on the SEC favored John Biggs, the former head of the TIAA-CREF teachers' pension fund.
Biggs, a longtime critic of the accounting profession, was seen as the front-runner for the chairmanship until some of the nation's accountants began squawking. Pitt's critics contend he bowed to industry pressure in not nominating Biggs to the post. Pitt has denied the charge.
Now the SEC is conducting its own investigation into the process by which Webster was nominated, and Pitt's role in it. Andcongressional Democrats are demanding that the General Accounting Office launch its own inquiry.
For Pitt, the controversy marks another self-inflicted stain on hisreputation. Some say it's inconsistent with the kind of openness the SEC is supposed to be demanding of companies in their financial reports.
"It shows a complete lack of judgment and appreciation for the concept of full disclosure," said J. Boyd Page, an Atlanta securities lawyer.
But more importantly, it's casting a big cloud over the job faced by the five-member Public Accounting Board, which is supposed topolice the accountants who audit the books of the nation's corporations.
The new board was the centerpiece of the Sarbanes-Oxley corporatereform law passed this summer in the wake of the corporate fraud andaccounting scandals at Enron,
, among others. Lawmakers hope the new board will help restore investor confidence in corporate bookkeeping and ultimately the stock market.
But the controversy will likely now raise questions about Pitt'smotives for backtracking from his earlier support of Biggs and his decision to nominate Webster -- warts and all.
Indeed, before the revelation about Webster's role on the auditcommittee for U.S. Technologies, the main criticism was that the78-year-old attorney had little accounting experience. In nominatingWebster, it seemed Pitt simply was looking for a person with sufficientname recognition in Washington to avoid the kind of controversy that has now erupted.
That's because when it comes to resumes, Webster's is hard tobeat. Not only is he a former federal judge, but he also served long stints as directors of the Federal Bureau of Investigation and the Central Intelligence Agency.
Yet in putting forward Webster's name, Pitt has opened thisveteran government servant to further scrutiny. The SEC probe will not only look into Pitt's role in the nominating process, but Webster's role on the audit board of U.S. Technologies. One thing that may be looked at is the audit committee's decision in 2001 to fire its outside auditor, BDO Seidman, after the accounting firm told U.S. Technologies that it didn't properly record a large transaction.
U.S. Technologies, a Washington-area company that is now nearly insolvent, at one time had a number of other high-profile board members. Besides Webster, other directors included former Secretary of State and NATO Commander Alexander Haig and former Sen. George Mitchell.
Others have questioned whether Webster, at 78, is up to the rigorous demands of the new accounting board. Several attorneys, who did not want to be named, said they remembered Webster nodding off during long meetings in the past year.
Webster, a partner with the big New York law firm Milbank Tweed Hadley & McCloy, couldn't be reached for comment. Other Milbank lawyers who have worked with Webster either declined to comment or didn't return phone calls.
Whatever Webster's issues, it's clear that in trying to pursue a course of moderation for the accounting board, Pitt has managed to alienate almost everyone involved in it.