SEC chief seeks probe of Webster’s selection to head board
WASHINGTON (AP) – The Securities and Exchange Commission launched an investigation into William Webster’s selection to head an accounting oversight board after the disclosure that Chairman Harvey Pitt concealed information about Webster from fellow commissioners. The investigation by the agency’s inspector general, Walter Stachnik, was requested by Pitt, already besieged with calls for his resignation, and other commissioners, SEC spokesman John Heine said.
Commission spokeswoman Christi Harlan said the internal investigation was “the normal route” for such inquiries. “This is simply a look at the process and it is not a review of Judge Webster,” she said.
The White House firmly backed Pitt, even as spokesman Scott McClellan acknowledged, “We don’t know the facts.” He said the administration did not learn that Pitt had allegedly withheld information until it received a phone call from a reporter.
Top Democrats renewed calls for Pitt’s resignation. “Mr. Pitt not only deprived his fellow commissioners of vital information about one of the most important appointments they would ever make, he knowingly endorsed a candidate for chairman of the accounting oversight board without seriously investigating the matter,” said House Democratic Leader Dick Gephardt of Missouri. “I again urge President Bush to ask Harvey Pitt to step aside from his post today.”
“President Bush made this unfortunate appointment he should fire him,” Rep. Ed Markey, D-Mass., said of Pitt.
Bush stood by Pitt.
“Chairman Pitt has done a good job in cracking down on corporate wrongdoing and the SEC has a very strong record under his leadership,” said Bush spokeswoman Claire Buchan. “We support him.”
Harlan confirmed the request for the IG investigation in the wake of a revelation that Pitt had failed to tell other commission members – in advance of last Friday’s SEC vote – that Webster had headed an auditing committee of a company facing fraud charges.
A sharply divided SEC approved Webster’s appointment that day. The two Democrats on the commission had supported another candidate whom they believed would advocate tough regulation of the accounting industry.
In an interview with The New York Times, Webster said he told Pitt and Robert K. Herdman, the SEC’s chief accountant, days before the vote that he had headed the auditing committee for U.S. Technologies, a company facing lawsuits by investors alleging fraud.
“I told them that people are making accusations,” Webster told the newspaper. “I said if this is a problem, then maybe we shouldn’t go forward.” He said he was assured by Pitt that SEC staff had looked into the issue and that it would not pose a problem.
U.S. Technologies’ former accounting firm, other members of the auditing committee, company executives and investors told the Times they were never contacted by anyone at the commission about Webster’s appointment.
Webster said he called Pitt again on Monday, three days after he was appointed, saying he had heard over the weekend that a government probe had been opened to investigate possible fraud by the chief executive of U.S. Technologies, C. Gregory Earls. Mr. Pitt did not tell the other commissioners about the Monday conversation either, SEC officials told the Times.
The SEC auditing oversight board was created by legislation inspired by accounting scandals that led to the financial debacle at Enron, WorldCom, Global Crossing and other large companies. It was designed to supervise and discipline the accounting industry.
Paul R. Brown, head of the accounting department at New York University’s Stern School of Business, said, “I think it’s real unfortunate that this was not disclosed prior to the vote. … We’re not sure whether it would have made a difference but we do know that it would have led to substantially in-depth questioning.”
But Brown said he didn’t think the Webster appointment would be overturned. “My prediction is that it will not be rescinded. It will just add a further cloud to the beginning of this board,” he said.
Webster, a former director of the CIA and FBI and former federal judge, was selected by a 3-2 vote to head the oversight board. Pitt was Webster’s leading advocate on the commission and had come under fire for playing politics with the decision.
“I am fiercely independent. I am beholden to no one,” Pitt said in an emotional address to the commissioners last Friday, when he pushing Webster’s selection. He said no one from the accounting profession, the Republican Party or the Bush administration had sought to influence his decision.
Democrats on the committee had backed John H. Biggs, a pension fund administrator, for the job.
After the vote, Senate Banking Committee Chairman Paul Sarbanes, D-Md., had called on Pitt to resign.
Pitt has come under fire for his ties to the accounting industry at a time that the SEC has been heavily involved in the investigation of large-scale accounting fraud at big corporations. Before joining the commission, he represented Wall Street’s big players and all Big Five accounting firms as a private security lawyer.
The White House has remained steadfast in its support of Pitt.