back

Another Workday for Pitt and the SEC

Tension About Chairman's Exit Is But an Undercurrent

By Kathleen Day
 
The Washington Post, November 7, 2002

Commissioners Cynthia A. Glassman and Harvey L. Pitt prepare to begin a Securities and Exchange Commission meeting yesterday. Despite Pitt's resignation as chairman Tuesday night, the commissioners joked and conducted business as usual. (Lois Raimondo -- The Washington Post)

The five members of the Securities and Exchange Commission -- including Chairman Harvey L. Pitt, who had submitted his resignation the night before -- publicly discussed proposed new rules yesterday in a remarkably business-as-usual manner.

Pitt and his fellow commissioners exchanged comments, even joked, and were nothing but cordial with one another. Only one commissioner, Harvey J. Goldschmid, mentioned Pitt's decision to step down. He praised Pitt for leaving the agency an "important legacy" but then quickly moved on to the matter at hand.

Beneath the calm, if tired, faces among commissioners and staff members in the audience, emotions ran high. Some were angry, blaming each other for allowing politics and personal vendettas to escalate tensions among the commissioners. Others were simply bewildered that the first SEC commissioner since Watergate to resign under duress is a man who cares for the agency and who aspired most of his professional life to become its chairman.

But even among Pitt's critics, the prevalent feeling seemed to be sadness for the agency and for Pitt, a man heralded by one senator as a "Zeus" among securities lawyers but whose hubris and drive seemed to many to trap him in a cycle of blunders.

"It may be his own doing but I'm not going to say that today," commented one colleague, who did not want his name used.

There is also a sense of relief that Pitt, in the words of one agency lawyer, "took the noble course and spared us having to go through months of a process that likely would have led to the same result." The lawyer was referring to two agency investigations into how Pitt and SEC Chief Accountant Robert K. Herdman handled the selection of former FBI and CIA director William H. Webster to head a new, congressionally mandated board to police the auditing industry after scandals at Enron Corp. and other public companies.

An agency spokesman said the two probes, one by the SEC's general counsel and the other by its inspector general, will proceed. An agency source said they could be completed within two weeks, though that could change if Webster steps down as head of the new board. In any case, there is relief that Pitt's fate is no longer up in the air, even if it takes the White House weeks to replace him, and that the agency can go about its business.

That business is considerable. The SEC faces a record enforcement caseload stemming from the collapse of Enron, WorldCom Inc. and a series of other well-known companies. It is trying to restructure the nation's major investment houses and stay on top of major market changes brought on by new technology. Meanwhile, the commission's staff has been demoralized by Pitt's repeated blunders, including meeting with heads of companies under SEC investigation and lobbying to elevate the SEC to cabinet status without first telling the White House.

Then there was last week's revelation that Pitt failed to inform the other commissioners about Webster's ties to a Washington company that is under investigation for possible fraud.

Sources at the agency say that SEC enforcement chief Stephen M. Cutler met with the division's staff in Washington yesterday afternoon and reminded them how important it was "to maintain their focus and keep their heads down" and not get distracted by the swirl around Pitt.

"There has been and will continue to be speculation on how this affects our work and our ongoing caseload," Cutler told his staff, according to someone who attended the meeting. "Let me put it very simply: It won't."

Pitt -- who declined numerous interview requests yesterday -- may not be leaving soon, anyway. White House press secretary Ari Fleischer said yesterday that Pitt will be replaced "as soon as the transition allows" but that the process could "take weeks or months."

White House officials said that their personnel office had begun searching for a replacement and that President Bush would be personally involved in the selection in later stages.

"They had better do it quickly. This chaos is not a good thing, and having an SEC chairman a year is not a good way to run an agency," said Rep. Barney Frank (D-Mass.).

Many names are circulating, including former SEC chairman Richard C. Breeden, former SEC enforcement chief William R. McLucas and former SEC general counsel and Bush family friend James R. Doty. None returned calls seeking comment.

Frank G. Zarb, a Republican who ran the Nasdaq Stock Market, is said to be a front-runner. He declined to comment yesterday.

Former New York mayor Rudolph W. Giuliani is another possibility, sources say. "I need time out of government right now. That is not something I'm interested in" he told members of the Securities Industry Association at their annual meeting here, Dow Jones reported. "I'm not looking for a job," he said.

Gary G. Lynch, a former SEC enforcement chief, would be a popular choice among the agency's staff. Through a spokesman Lynch, now general counsel of the investment-banking firm Credit Suisse First Boston Corp., declined to comment.

Investment company manager Charles Schwab, also mentioned yesterday by industry and government sources, also declined to comment.

At the hearing's conclusion, Pitt and the other commissioners left abruptly, without stopping to chat with reporters as they often do after such meetings. Instead an unusually large number of security guards, who an agency spokesman said were summoned in anticipation of a large turnout by those interested in the rules being proposed, helped escort the commissioners from the room.

Later yesterday one commissioner, Republican Cynthia A. Glassman, issued a statement: "I am sad and disappointed that Chairman Pitt has resigned. His departure will be a loss for the investing public, the SEC, and me personally. Despite the controversies during his tenure, under Harvey's leadership, the Commission did outstanding work on behalf of American investors. I believe strongly that Harvey is a man of integrity and has always had the best intentions for the Commission."

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.