NEW YORK — In October, Securities and Exchange Commission Chairman Harvey L. Pitt uttered three words that he's been trying to live down ever since.
In his first official speech since taking office two months earlier, Pitt indicated to a gathering of accountants that he wanted a "kinder and gentler" SEC that would be less combative with the firms it regulates.
Barely a month later, Enron Corp. disintegrated in a heap of financial misdeeds, and Pitt was mobbed by criticism that he was too cozy with the accounting industry and was failing to put investors' interests first.
Few SEC chairmen have become embroiled in controversy as early in their terms as the 57-year-old Pitt, whose appointment as head of the nation's market regulatory agency fulfilled his long-held dream.
Now, the question is how Pitt's trial by fire will affect his ability to shape the agency, and securities regulation, at what is a watershed moment for both.
The calls for change that have rung out in the wake of the scandal-ridden failures of Enron and Global Crossing Ltd. offer a chance to etch the most substantive market reforms since those that followed the Great Depression, some say.
But Pitt's early image problems complicate his task of navigating between a skeptical public and a Congress agitating for action, while staying true to his own beliefs and those of the conservative president who appointed him.
What's more, Pitt's SEC staff of 3,000 is suffering heavy turnover and sagging morale and is, by his own estimation, underpaid and lacking critical resources.
On Thursday, Pitt implored Congress to free up $76 million to boost SEC salaries, and an additional $15 million to hire 100 more lawyers and accountants to handle the more aggressive market oversight that lawmakers and the public now demand.
"Clearly, this is a historic opportunity to do a lot," said Patrick McGurn, vice president at Institutional Shareholder Services, an investment-consulting firm in Rockville, Md. "Historic opportunities don't come around too often. The question is whether Pitt's commission has been so wounded that it has to spend all its time nursing itself back to health."
From the moment he was tapped by President Bush in July to be the 26th SEC chairman since the agency's founding in 1934, Pitt made clear that he would differ in philosophy, and style, from the man he succeeded.
Former Chairman Arthur Levitt Jr.'s heated clashes with the accounting and securities industries carved his reputation as a fierce advocate for small investors.
The Brooklyn-born Pitt, a renowned securities lawyer whose career began in 1968 with a decade-long stint at the SEC, sought more of a middle ground: He said he wanted to improve corporate financial disclosure while also easing regulation on some fronts--for example, by streamlining the process by which big companies sell securities in capital markets.
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A Greater Urgency for Reform Agenda
In a recent interview with The Times, Pitt said the Enron debacle had not changed his mind about the agenda he originally wanted to push at the SEC. Rather, he said he saw a greater urgency to speed its implementation.
At the top of his list, he said, were raising SEC staff pay and gaining the legal authority to prevent executives or directors who engage in wrongdoing from working at other companies.
However, Pitt also said any and all reform ideas were now on the table--a concession that would have seemed unlikely pre-Enron.
On Thursday, Bush gave Pitt's program a strong endorsement when the president unveiled a financial-reform package that closely tracks many recent Pitt initiatives. For example, Bush wants to expand the list of significant events that companies must disclose immediately to the SEC and investors. He also proposes speeding up insiders' reporting of personal stock transactions.
Almost "every one of these is something that emanates from recent SEC proposals under Harvey Pitt," said John Coffee, a Columbia University law professor. "The president has turned to him and said, 'What are the [policies] we can endorse without undercutting our own constituency?' "
Some analysts said it was notable that Bush's plan excluded a suggestion from Treasury Secretary Paul H. O'Neill that Pitt was known to oppose: O'Neill wanted to make it easier to punish executives by lowering the legal standard for wrongdoing from intentional "recklessness" to simple "negligence." Pitt and some others feared that would spur additional litigation against companies.
Some critics continue to deride Pitt as kowtowing to the big accounting firms that he once represented as a private lawyer, and say his reform proposals are too modest to prevent more Enrons in the future.
Pitt jabs back at his critics, saying people have twisted his words.
