Harvey Pitt's election-night resignation from the
Securities and Exchange Commission
set off a handicapping contest in political and legal circles over who will succeed the controversial chairman.
President Bush needs someone with stature and savvy to restore investor confidence and provide a badly needed morale boost for SEC staff. The new chief will need to look tough, though the toughness likely will be aimed at high-profile offenders rather than the Wall Street establishment at large.
"What you need is someone saavy," said a former lawyer at a Wall Street securities firm. "The problem with Pitt was that he permitted the state regulators to take control over the regulatory agenda."
What's sought is someone to wrestle back the spotlight from state regulators like New York Attorney General Eliot Spitzer. One of the criticisms of Pitt's chairmanship is that he allowed the SEC to become second-fiddle to Spitzer and others in pursuing conflict of interest charges against Wall Street firms.
Already the names of several potential candidates are being bandied about on Capitol Hill as possible successors to Pitt. They include former New York City Mayor Rudolph Giuliani, former Nasdaq Stock Market Chairman Frank Zarb, CSFB General Counsel Gary Lynch, and Jim Doty, a former SEC general counsel and a Bush family lawyer.
All of those mentioned, at first blush, would seem to have the kind of qualities and political connections that the White House is looking for. They either are high-profile officials who would command instant respect, or have vast experience working in the securities industry, both in regulation and private practice.
Giuliani, who one Washington securities lawyer said has more support than anyone thought, epitomizes the qualities, having made his bones bringing down Michael Milken as a Manhattan prosecutor in the 1980s and showing himself beyond moral reproach (at least professionally) over eight years as mayor of New York City.
Securities lawyers also speak highly of Lynch, a former SEC prosecutor who worked with Giuliani on the Drexel case. One who knows Lynch says that his two dream jobs are being general counsel for a major securities firm and serving as SEC chairman.
He currently holds the former, and that could hurt his odds for achieving the latter. That's because CSFB is one of the big-name securities firms caught in the thicket of the regulatory investigations into Wall Street's business practices.
Lynch has been representing CSFB during the ongoing negotiations with the SEC, state regulators and the National Association of Securities Dealers, which are aimed at reaching a global settlement of the many inquiries into Wall Street conflicts of interest. Another thing that could work against him is that he's said to be a registered Democrat.
A CSFB spokeswoman declined to comment on Lynch's potential candidacy.
Outside the Box
Another name being mentioned is Mary Schapiro, president of regulatory policy and oversight for the NASD. Schapiro is respected in the securities industry and has taken a lead in making the NASD a more aggressive regulator. Schapiro's office is also playing a role in the ongoing global settlement talks going on with nearly a dozen leading Wall Street firms, the SEC and New York Attorney General Eliot Spitzer.
In many ways, Schapiro would seem well-suited for the post, having served as a former SEC commissioner from 1988 and 1992, and as the acting chairwoman of the SEC in 1993. Former President Bush, the current president's father, appointed her to a five-year term on the SEC in 1989.
A NASD spokeswoman couldn't be reached for comment.
To be sure, the successful candidate could be almost anyone, and several pundits noted that the successful candidate often isn't among the initial names floated in the press.
Meanwhile, Pitt's resignation is sure to spark speculation about what will happen to William Webster, the chairman of the newly created Public Company Accounting Oversight Board. It was Pitt's support of Webster and his failure to disclose some potentially damaging information about Webster that sparked the latest controversy. Many expect him to follow Pitt's lead and step down.
Dissatisfaction with Pitt peaked last week following the revelation that he failed to tell his fellow SEC commissioners that Webster had served on the audit committee of a company potentially facing civil fraud charges. The revelation led SEC commissioners, including Pitt himself, to request an internal investigation of Webster's selection -- and renewed calls for his resignation.
Webster, a former federal judge, served on U.S. Technologies' audit committee, a financially troubled company that's facing fraud accusations. The audit committee fired the company's auditor, BDO Seidman, after the firm told U.S. Technologies that it didn't properly record a large transaction.
Pitt's decision to withhold the information may have influenced the outcome of the SEC's divided 3-2 vote two weeks 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.
For Pitt, the controversy marked another self-inflicted stain on his reputation. Some said it was inconsistent with the kind of openness the SEC is demanding of publicly traded companies and was another example of him caving to accounting interests.
It's also not known what impact Pitt's resignation will have on the ongoing global settlement talks with the Wall Street firms. A Spitzer spokesman declined to comment.
Securities regulators are scheduled to meet again Thursday in New York with representatives from the firms involved in those talks. As of this moment, the morning meeting at the offices of the
New York Stock Exchange
is still scheduled to take place.
Some lawyers suggest Pitt's resignation will have little effect on those negotiations, which are inching closer to a deal, since Pitt may stay on at the SEC until a successor is named. And much of the SEC's work in those negotiations is being handled by Stephen Cutler, the SEC director of enforcement.