Harvey Pitt, the Wall Street yes man whom President Bush had appointed to head the Securities and Exchange Commission (SEC), was forced to resign on Nov. 5. His demise came amid growing public outrage over his role in the selection of William Webster to head the new SEC agency that Congress established to oversee the activities of the “Big Five” Wall Street accounting firms. He was the first high level Bush appointee to be driven from office.
Pitt’s chicanery became public when a sharply-divided SEC voted 3-2 to appoint former FBI head Webster to the newly-created position in a move to hijack the congressional mandate for an independent oversight board to monitor the accounting industry. In a masterstroke of timing, Bush arranged for Pitt’s ouster while the people’s attention was fixed on the 2002 elections.
Webster had been selected by Pitt despite the fact that he had no experience in accounting. Worse yet, he had chaired the auditing committee of U.S. Technologies (UST), a small publicly-financed company that has since gone broke amid charges that its officers stole millions of dollars during Webster’s watch. To make matters worse, when the company’s outside auditor complained that UST’s accounting left much to be desired, Webster voted to fire the auditor.
Pitt knew all of this and recognized he had a problem: How to keep these unsavory facts about Webster hidden, not just from the public, but from the other four members of the SEC, as well. His solution was straightforward: don’t tell them.
Earlier, AFL-CIO President John Sweeney had called the vote to confirm Webster “an outrageous effort to undo the accounting reform legislation Congress passed into law last summer.” He said it was “one more example of the Bush administration’s “commitment” to allowing accounting industry practices that “brought us Enron, WorldCom and Tyco to continue.”
Bill Allison, editor of Public Integrity, the monthly journal of a Washington public interest think tank, called Webster’s selection a “classic example of putting a fox in charge of a chicken coop. Or, in Webster’s case, it’s more like putting criminals in charge of the criminal justice system,” he told the World.
The Sarbanes-Oxley Act was passed by Congress last July in response to the public outrage over rampant corporate fraud and the role of Arthur Andersen and other accounting firms in helping hide the malfeasance. The intent of the Sarbanes-Oxley Act was to replace self-regulation of the accounting industry with an oversight committee.
Bush selected Pitt, one of the nation’s leading securities lawyers, with a client list that looked like a roster of Fortune 500 banks and corporations to replace Arthur Levitt as chairman of the SEC. Levitt had angered the business community by sticking up for the average investor and rankled the “Big Five” accounting firms by proposing they be banned from being consultants to firms for whom they were auditors.
Monuments to Pitt’s SEC stewardship include:
• Enron Corporation, which collapsed after hiding millions of dollars in debt from investors and employees by a series of accounting manipulations.
• Arthur Andersen, the accounting firm convicted of accounting fraud for approving Enron’s tricks, was a former Pitt client and one of the key firms behind Pitt’s efforts to stop Levitt’s proposal.
• Within weeks of Enron, Tyco International Ltd. was accused of falsifying merger information and Qwest Communications, Martha Stewart, ImClone and Dynegy all have been accused of some sort of business violation.
• In the process the stock market lost trillions of dollars in value, with union pension funds that cover millions of workers, taking a $1.5 trillion hit.
Although SEC is supposed to be an independent agency, members of the White House staff were in touch with Pitt when lobbyists hijacked the selection of the audit oversight board. Andrew H. Card, Bush’s chief of staff, urged Webster to accept the job. Treasury Secretary Paul H. O’Neill was consulted on Webster’s appointment.
That the accounting firms got what they wanted should come as no surprise: they paid good money to get it. From July 2001 to July 2002, 10 large brokerage firms and two securities industry lobbying organizations spent $31 million pleading their cases before Congress, the White House and many Washington agencies.
The author can be reached at fgab708@aol.com
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