S.E.C. Chief Strikes Back at His Critics
The New York Times
March 22, 2002
By STEPHEN LABATON
WASHINGTON, March 21 -
Harvey L. Pitt, the
chairman of the Securities and
Exchange Commission, lashed
out today at critics who have said
that the agency's response to the
Enron debacle has
been weak and that the
accounting industry has had a
greater influence in shaping the
agency's policies than consumer
and investor groups.
Near the end of an otherwise dry
hearing on accounting and
corporate governance issues
before the Senate Banking
Committee, Mr. Pitt grew
emotional and used
uncharacteristically blunt
language to strike back. He
accused those who have
suggested he remains too close to
his former clients in the
accounting industry of
perpetuating "the big lie."
He chastised the media for
"deliberately mischaracterizing" a
recent meeting he had with top
executives from the Big Five
accounting firms in which he said
he had urged them to come up
with their own reforms or face
tougher rules from regulators,
Congress and the courts.
And he called it "petulant" of the
Public Oversight Board, an
accounting review board run by a
prominent group of experts, to
have resigned in protest after his
recent proposal to overhaul the
organization in a way that the
group said would give the
accounting industry more
control.
Beginning with his confirmation
hearing last year, Mr. Pitt has
had to reassure lawmakers that
his prior work as one of the
nation's top securities law
specialists would not create conflicts or divide his
loyalties. As a partner at Fried Frank Harris Shriver &
Jacobson, Mr. Pitt represented clients that included
virtually every major player on Wall Street, including
accounting firms, stock exchanges and many of the major
investment houses.
But since then, he has been criticized for moving too
slowly in announcing his recusal from the Arthur
Andersen case and for meeting with the accounting
executives at the same time that some groups, including
the Council of Institutional Investors, had complained
about not having similar access.
The combative and defensive tone of his response to the
critics today was unusual for Mr. Pitt, who customarily is
quite measured. The written testimony he submitted
today, for instance, had 45 footnotes and 11 appendixes.
In recent weeks, Mr. Pitt has appeared besieged from all
sides as he has tried to advance an agenda. He has
sparred with his predecessor, Arthur Levitt, who has
sought more stringent accounting regulations, and he has
chafed at characterizations by some Democratic
lawmakers who have called him a "reluctant regulator." He
has continued to struggle against the lingering image
projected by his critics that he is beholden to the
accounting firms he represented in private practice.
He has also done battle with White House budget
advisers. They have been unwilling to support his request
for $75 million in additional money he says the agency
needs to raise the sagging morale and high attrition rate
by increasing the pay of officials to levels comparable with
those at other regulatory agencies.
On Tuesday, Senator Paul S. Sarbanes, the Maryland
Democrat who leads the banking committee, called Mr.
Pitt's meeting with the industry shortly before
announcing his proposals "a very quick, in a sense almost
secret, consultation." Mr. Sarbanes said the S.E.C.'s policy
recommendations would have limited credibility if the
agency did not reach out to other groups.
The simmering frustrations bubbled over when Mr.
Sarbanes asked Mr. Pitt to respond to earlier testimony
that some groups had not been consulted by the
commission as it prepared policy responses to the collapse
of Enron and the indictment of Andersen, its auditor,
while other groups, notably the major accounting firms
who had been former clients, had had access to Mr. Pitt.
Mr. Sarbanes also asked Mr. Pitt to reply to the criticisms
by some members of the five-member Public Oversight
Board, which resigned in protest after saying it was not
consulted about changes proposed by Mr. Pitt.
The questions prompted a long, emotional reply. "I'm not
going to get down in the muck with some of the
accusations that people have made," Mr. Pitt said, shortly
before he questioned the motives behind the mass
resignation by the Public Oversight Board. The group was
headed by Charles A. Bowsher, the former comptroller
general of the United States. "I don't believe the reason for
the resignation was the one that was given," Mr. Pitt said.
Mr. Bowsher has said that the proposal by Mr. Pitt would
actually give the accounting industry a greater role in
certain ethics proceedings than it already has.
Mr. Pitt disputed news accounts of a meeting he held with
the leaders of the Big Five accounting firms that
suggested the meeting was an effort by the agency to
blunt more severe restrictions. He also took issue with the
suggestion that his prior representation of the industry in
any way colored his policy recommendations.
"I represented a lot of people when I was in private
practice and I don't believe in guilt by occupation," he
said. "When I told you during my confirmation
proceedings that I now have only one client, I meant it.
"This has been deliberately mischaracterized by the
media," he said of his meeting with the Big Five
accounting firms, which he said led to the decision by the
industry to support what he called tough new restraints.
"I've gotten zero credit for achieving that result, but I tell
you I'm very proud of it."
That comment prompted Mr. Pitt's strongest
Congressional supporter, Senator Phil Gramm,
Republican of Texas, to say that the critics were
employing a tactic from another era.
"This tactic is an old tactic of Nazi Germany of guilt by
association," Mr. Gramm said.
"And the big lie," Mr. Pitt replied. "And the big lie."
In other fallout from the Enron collapse, a Senate
committee approved pension legislation intended to
diversify workers' retirement accounts. The measure,
sponsored by Senator Edward M. Kennedy, Democrat of
Massachusetts, was approved by a party-line vote of 11 to
10. It would permit a company to use its stock for
employer contributions or matching contributions, but
not both, and would impose tougher disclosure standards
on sales of company stock by executives.
On Wednesday, a less restrictive measure that largely
follows the proposals of President Bush and is sponsored
by Representative John A. Boehner, Republican of Ohio,
was adopted by a House committee along party lines.
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