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SEC Chairman Quits Under Fire

Harvey Pitt's term was marked by political gaffes, the latest with a key appointment.

November 06, 2002|Walter Hamilton and Edwin Chen | Times Staff Writers

Harvey L. Pitt, the beleaguered chairman of the Securities and Exchange Commission, resigned under pressure late Tuesday after his latest misstep left the White House embarrassed and unwilling to fight for his future as Wall Street's chief regulator.

Fifteen months after his appointment, Pitt submitted a four-paragraph resignation letter to President Bush in which he said the controversy surrounding him was blunting the SEC's efforts to restore investors' faith in financial markets.

"Unfortunately, the turmoil surrounding my chairmanship and the agency makes it very difficult for the commissioners and dedicated SEC staffers to perform their critical assignments. Rather than be a burden to you or the agency, I feel it is in everyone's best interest if I step aside now," Pitt wrote.

His resignation ends a term marked by repeated gaffes and controversies in a year when public trust in markets has been shaken by a steep slide in stock prices, widespread allegations of Wall Street misconduct and massive accounting scandals.

But the decision by the former star securities lawyer to depart also creates new complications for the SEC and the Bush administration. The agency faces a huge workload in negotiating Wall Street reforms and implementing corporate governance changes mandated by Congress.

"Whoever the next chairman is has got a lot of work ahead of them," said Lynn Turner, a former SEC chief accountant.

Yet it is unclear how quickly a new chairman can be named by President Bush and confirmed by the Senate, given partisan politics that Pitt helped inflame in recent weeks.

Washington sources have suggested several possible successors to Pitt. Among them: James Doty, a former SEC general counsel; and Michael Chertoff, an assistant attorney general at the Justice Department.

Pitt sparked a firestorm last week after it was revealed that he did not share with the four other SEC commissioners potentially damaging information about William H. Webster, whom Pitt had championed to be chairman of a new accounting industry oversight board.

Webster, a former federal judge, had served as a director of a small Washington-based company that had a run-in with its accounting firm and has been sued by shareholders on allegations of fraud.

Webster told Pitt about the issues before the SEC voted on Webster's appointment Oct. 25. But Pitt did not inform the other SEC commissioners. Webster was confirmed in a 3-2 vote, with the Republican majority in favor and the two Democrats against.

When the four other commissioners learned that Pitt had not shared the information about Webster, they demanded an investigation. Meanwhile, key Democrats in Congress called for Pitt's resignation, saying he had withheld potentially critical facts about Webster.

A Pitt spokeswoman last week said that Pitt asked the SEC staff to investigate Webster and that the staff found "nothing of concern." But that didn't help Pitt's standing with critics.

The White House, especially Chief of Staff Andrew H. Card Jr., also was aggravated because Pitt failed to share the information with Card, who had favored Webster's appointment.

Perhaps sensing the inevitable, Pitt's staff sent indications to the White House several days ago that he was "strongly considering" stepping down, a White House official said Tuesday night. The White House made no attempt to dissuade Pitt.

Late Tuesday, Pitt informed the White House personnel office that he had decided to step down and then sent a letter of resignation to Bush.

Pitt, considered a brilliant lawyer, began his career at the SEC in 1968. He rose to become general counsel of the agency by the late 1970s.

In the 1980s Pitt became one of the nation's highest-profile corporate lawyers, working for a long list of major companies, including securities firms and accounting firms.

When Bush named him to head the SEC 15 months ago, it was the culmination of Pitt's long-held dream to return as agency chief. He won plaudits early on for helping the markets reopen after the Sept. 11 terrorist attacks .

But from the start Pitt, 57, was dogged by charges that he was too close to the securities and accounting industries.

Earlier this year, Pitt met privately with executives of major accounting firms. The meetings raised concerns that Pitt was considering preferential treatment for the firms, even as public outrage was growing over accounting scandals at companies such as Enron Corp.

Last summer, Pitt irritated the White House by seeking to elevate the SEC chairmanship to Cabinet status and raise the position's salary. His campaign met with derision among congressional Democrats and blank stares from Republicans.

Many said Pitt's political tin ear was especially surprising given that he was a Washington veteran.

The SEC implemented several potentially important reforms during Pitt's tenure and opened a record number of enforcement cases. Among Pitt's initiatives was one forcing companies to release financial information more quickly.

Pitt was in a tough position, some experts said, because Bush did not favor the aggressive corporate reforms pushed by Democrats. Yet many of Pitt's friends and critics alike say that given the wave of financial scandals this year, he missed the enormous political opening to drive long-lasting reforms that would have been his legacy.

"It's sad that somebody who is basically honest and worked to serve the public was unable, through ineptitude or lack of political savvy, to do the job," said Stephen Bainbridge, a UCLA securities law professor.

"He's just not a bad guy. He just wasn't the right guy for this job."

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Hamilton reported from New York, Chen from Washington.

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