Officer Friendly: Going to desperately try to cover
up for his mob owners; now that the somewhat real
police is on the case:
------------------------------------
Harvey Pitt takes a tough line on Wall Street
By John Labate in New York
Published: April 28 2002 21:20 | Last Updated: April 28 2002 23:44
Financial Times
Wall Street's top cop, Harvey Pitt, is not about to cede enforcement or regulatory ground on the issue of analyst conflicts to Eliot Spitzer, the feisty New York attorney general.
That was the message late last week when the Securities and Exchange Commission chairman said he had launched a formal inquiry into such conflicts - and that he would include a number of top firms and consider new rulemaking as a result of the probe.
"My view is to be all-inclusive and not worry about who gets credit for what," said Mr Pitt in an interview with the Financial Times. "My concern is the protection of investors. The good news is that our agency is independent and I don't have to run for election."
Jousting with Mr Spitzer is just the latest unexpected turn of events for Mr Pitt during his first eight months as SEC chairman. He came to office with an activist agenda in two key areas: updating corporate disclosure and rewriting the more outdated parts of 70-year-old US securities laws.
But little progress has been made on those fronts, while most of Mr Pitt's time has been spent dealing with successive market and corporate crises.
"Enron has had a dramatic impact on the agenda as well as the approach of the SEC," said Richard Phillips, a senior partner at Kirkpatrick & Lockhart and former SEC assistant general counsel. "[It] shows how, in public life, the agenda you come in with is not necessarily the agenda you're going to be able to follow."
It will be Mr Pitt's duty for the foreseeable future to catch the wrongdoers and update the rules that were violated during the bull market of the late 1990s.
The excesses of the period - such as accounting abuses at big corporations and ethical and legal violations by the largest investment banks and brokerages - were apparent before the Enron collapse, but the scandal has forced regulators to take a more aggressive approach.
"There is a dysfunction at major corporations and accounting firms and I don't think the SEC performed as well as a cop on Wall Street," said Joel Seligman, SEC historian and dean of Washingon University Law School.
Mr Pitt recognises that analyst conflicts are only one of a series of abuses that threaten to undermine the trust of investors. But it is still not clear how far Mr Pitt - a lawyer who came to the SEC with a reputation for being close to the Wall Street firms he must regulate - will pursue offenders.
Mr Spitzer's presence has already spurred the SEC chief to deal with analysts' conflicts as an enforcement action rather than just a regulatory one.
Mr Pitt points out that the SEC has been looking into the conflict question since before he took over last summer. But any rule changes by the SEC will probably be tougher on investment banks than they would have been had Mr Spitzer not become involved.
The early signs are that the SEC's enforcement team will take a tough stand. In January and February the SEC opened a record 49 financial accounting cases, twice the number in the same period of 2001.
Alongside regulators at the National Association of Securities Dealers, which oversees the brokerage community, the SEC continues to investigate abuses of the initial public offering process by Wall Street firms, having imposed a $100m fine on CSFB in January to settle a case against the firm.
Hampering these efforts, say observers, is the reluctance of lawmakers to provide the agency with the necessary funding. "The single most important thing Congress can do to make sure the SEC fulfils its mandate is to provide pay parity and expand the SEC's budget so it can beef up the enforcement ranks," said Daniel Kramer, New York securities lawyer at Schulte Roth & Zabel.
An emergency $20m for 100 new legal and accounting employees has been suggested by the Bush administration after it failed to give the SEC a sizeable increase in its last budget. Those funds have yet to arrive. In the meantime, Mr Pitt's staff at its corporation finance division has put companies on notice that it will increase its review of annual reports of the largest corporations in the hope of preventing a repeat of the Enron debacle.
Another criticism of the US administration is that it has been slow to propose replacements to bring the number of SEC commissioners up to the full complement of five. On Thursday, Mr Bush finally nominated two Democratic attorneys, Roel Campos and Harvey Goldschmid, to the vacant positions.
Despite the increase in SEC activity, Mr Pitt - like his predecessor Arthur Levitt - is criticised for being too close to the firms he regulates. As a lawyer he worked on the side of all big five accounting firms, including Andersen, and many securities firms, including Merrill Lynch.
In the immediate aftermath of the collapse of Enron, as Andersen began to melt down, some thought Mr Pitt's accounting reforms did not go far enough.
Mr Pitt says he is prepared to change his mind on such issues only if he is convinced of the need. For instance, he says attempts to require firms to split audit and consulting functions, "irrespective of who the client is, are not only not necessary, I think they are pernicious".
With his agency under unprecedented scrutiny, Mr Pitt will have to continue proving to the sceptics that he is using its powers and his undoubted skill in the interests of all sides. |
