11/03 00:12
Bush Prepared to Oust Pitt After Internal Probe, Official Says
By Jack Duffy
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Washington, Nov. 3 (Bloomberg) -- President George Bush is poised to oust Securities and Exchange Commission Chairman Harvey Pitt after a probe of William Webster's selection to run a new accounting board is done, a senior administration official said.
Bush will demand Pitt resign after Tuesday's election should an inquiry by the SEC inspector general conclude Pitt misled his fellow commissioners before they voted 3-2 to select Webster, the official said. Pitt didn't inform the four other commissioners that Webster had headed the audit committee of a company accused of fraud, SEC officials said.
Criticism of Pitt by investors and lawmakers is rising. Senator Richard Shelby of Arkansas, who next year will become the highest-ranking Republican on the committee that oversees the SEC, supports a probe of Webster's selection. Bush, who appointed Pitt last year, may be forced to remove him to head off complaints the administration is lenient in dealing with corporate fraud, political analysts said.
``The president is in a very tight spot when members of his own party are going against him,'' said Mark Rozell, a professor of politics at Catholic University in Washington. ``The more embroiled in this matter that the White House appears to be, the more it starts to hurt his own agenda on appearing tough on corporate reform.''
The administration official said neither Bush nor any advisers learned of Webster's role as the head of the audit committee of U.S. Technologies Inc. before the SEC's vote. Webster has said he informed Pitt of his work before the SEC confirmed him. The new accounting panel Webster was picked to run was created to help restore investor confidence after the collapse of Enron Corp. and WorldCom Inc.
Earlier Missteps
Pitt, who in his private law practice represented accounting firms, said in a 2001 speech to accountants that the SEC would be ``kinder and gentler'' than under his predecessor, Arthur Levitt. Pitt angered lawmakers by meeting with the chairman of KPMG LLP, a former client under investigated by the SEC.
Pitt upset the White House by seeking a personal pay raise and Cabinet rank for his agency at the same time he failed to seek additional funding lawmakers had authorized.
Last month, Democrats in Congress began calling for his resignation after Pitt withdrew his support for John Biggs, former chairman of the TIAA-CREF teachers pension fund and a critic of the accounting industry, as a candidate to head the oversight board.
Card Backed Webster
The controversy surrounding the appointment is embarrassing for the administration, the official said, because White House Chief of Staff Andrew Card urged Webster, a former FBI director, to take the position as head of the Public Company Accounting Oversight Board.
Pitt will continue to do his job until he hears from Bush, SEC spokeswoman Christi Harlan said. ``These are unnamed sources and the chairman serves at the pleasure of the president,'' Harlan said. ``The chairman is going to continue to do his job.''
Harlan said on Thursday that the SEC's staff was informed of Webster's work at U.S. Technologies and ``identified nothing of concern after reviewing the situation.''
Democratic Commissioners Harvey Goldschmid and Roel Campos, and Republicans Cynthia Glassman and Paul Atkins didn't return telephone calls made yesterday to their homes and offices.
``I have to believe there was no ill intent on the part of the staff or the chairman, though it would have been nice to have had all the facts before us before we voted,'' Atkins said in an interview Friday. ``All in all, it looks as if Judge Webster did what he should have done.''
Loss of Confidence
Pension fund managers who control billions in assets for U.S. workers said Pitt's credibility has been so damaged by Webster's appointment that he has become a liability for the administration and for investors, who have lost $2.2 trillion in stock market wealth this year as accounting scandals have contributed to a 22 percent fall in share prices.
``The chairman of the SEC has become a disturbing and unsettling influence,'' said Alan Cleveland, legal counsel for the $4.3 billion New Hampshire Retirement System. ``The country's best interests would be served by him going.''
The administration official didn't discuss a potential successor for Pitt, a 57-year-old lawyer who in 1975 was the youngest general counsel at the SEC. Pitt came to the job after spending 24 years as a Washington-based lawyer for the New York firm of Fried Frank Harris Shriver & Jacobson, where he represented securities firms such as Morgan Stanley as well as accountants.
White House spokesman Ari Fleischer told reporters on Air Force One yesterday that ``the president continues to have confidence in Harvey Pitt.''
``The inspector general and the SEC are looking into all these matters, and that's the appropriate place for them to be looked at,'' Fleischer said.
Probes
SEC Inspector General Walter Stachnik on Friday expanded the review of Webster's selection for the board to include his work on the audit committee of the Internet company. Stachnik has said he didn't know how long that probe would take and planned to stay independent of the influence of Pitt or the commissioners.
The Congress's General Accounting Office is investigating Pitt's action, at the request of Senator Paul Sarbanes, the Democratic chairman of the Senate Banking Committee that oversees the SEC.
Sarbanes, of Maryland, plans to hold hearings when the Senate returns to Washington this month. The GAO should focus on whether the candidates for the five-member accounting board were properly vetted and how Webster was selected, Sarbanes said.
Shelby joined Democrats in endorsing a congressional investigation of Webster's selection, spokeswoman Andrea Andrews said.
Investor Support Drops
Investors no longer support Pitt, according to a survey of 334 money managers by Broadgate Consultants Inc. published Friday. It showed 56 percent said Pitt should resign or were unsure if he should stay. More than 87 percent said they wouldn't classify Webster as the best choice to head the accounting board.
Pitt's latest misstep may violate legal ethics, said Lawrence Mitchell, a law professor at George Washington University and author of ``Corporate Irresponsibility: America's Newest Export.''
The failure to notify is ``the highest ethical violation of any public servant or lawyer -- period,'' Mitchell said. ``Pitt should not only resign -- he should be disbarred.''
Members of Congress began criticizing Pitt after he met April 26 with KPMG Chairman Eugene O'Kelly, whose firm is being investigated by the SEC for audits of Xerox Corp. Pitt represented numerous accounting firm before taking the SEC post.
Pitt has been chastised for failing to seek the full $776 million authorized by Congress for the current federal fiscal year, and for seeking a pay raise for himself and elevation of the agency to Cabinet rank, over administration objections.
``The White House can't do anything until after the election,'' Rozell said. ``It would seem like a political calculation, not a decision based on merit.'' |
