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A Rising Voice for Investors at SEC

Chairman Harvey Pitt's exit has enhanced the stature of reform- minded Commissioner Harvey Goldschmid.

November 18, 2002|Walter Hamilton | Times Staff Writer

NEW YORK — On the morning of a critical Securities and Exchange Commission vote late last month, Commissioner Harvey Goldschmid got a phone call from David Ruder, who had run the agency in the late 1980s.

The commission was bitterly split on a plan to name William H. Webster as the chairman of the nation's new accounting oversight board, and Ruder implored Goldschmid not to oppose the candidate publicly nor to voice grievances about the behind-the-scenes selection process.

Goldschmid politely refused, Ruder said. And in a passionate speech at the meeting, Goldschmid criticized Webster's selection and indicated that SEC Chairman Harvey L. Pitt had abruptly withdrawn support for a competing candidate who was expected to take a much tougher approach to accounting reform.

"I knew this was a step some people would object to, and only a compelling circumstance of this type would force me to come forward," Goldschmid said in an interview. "I consider it one of the least favorable days of my life, though I didn't have a second of reservation. In my view, I did the right thing."

With that speech, both supporters and detractors say, Goldschmid let it be known that he intended to play a forceful role at the SEC, the chief U.S. financial regulator.

And with Pitt's resignation from the SEC on Nov. 5, Goldschmid's stature was further enhanced among those who believed Pitt was following an agenda that undermined the agency's image.

Goldschmid, 62, is a Columbia University law professor and a former SEC general counsel. President Bush appointed him in April as one of two Democrats on the five-member commission, and the Senate confirmed him in July.

As a top aide to former SEC Chairman Arthur Levitt in the late 1990s, Goldschmid helped craft a host of pro-investor initiatives. Supporters say he'll be a powerful voice for investor interests at the SEC.

"Investors are extremely lucky to have him at the commission at this point in time," said Nancy Smith, director of RestoreTheTrust.com, an advocacy group for shareholders.

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Pivotal Player

As SEC general counsel in 1998 and 1999, Goldschmid was a driving force behind several of Levitt's reform measures, including an attempt to limit accountants from doing consulting work for companies they're auditing -- a proposal the accounting industry beat back.

Goldschmid also wrote Regulation FD, which prohibits companies from giving key information to favored investors without also releasing it to the general public.

And he has been a vocal opponent of a 1995 law intended to limit lawsuits by aggrieved investors against companies. As SEC general counsel, he argued two federal appellate court cases to ensure that investors still could bring suits on charges of recklessness in addition to intentional fraud.

But Goldschmid's burgeoning profile is stirring anxiety among political opponents who worry that he will press an activist agenda even to the point of fomenting dissension at the normally collegial SEC if he doesn't get his way.

"He's very ambitious," said Laura Unger, a former Republican commissioner. "I get the feeling he is someone who thinks 'Regulation at any cost.' "

Goldschmid dismisses such concerns. "Individual commissioners can't have agendas, and I don't think of myself as aggressive," he said.

What is certain is that Goldschmid will be a pivotal player in shaping the SEC and the financial markets at a time when both are at a crossroads.

Among the key decisions he and his colleagues will make is the choice of a replacement for Webster, who resigned last week following controversy over his work as a director for a small company that has been sued by shareholders alleging fraud.

The commission also will face major decisions in implementing the landmark corporate and accounting reform law signed by Bush in the summer. The law gives the SEC wide latitude in translating Congress' intent, and Goldschmid is expected to press for a tough interpretation of the new regulations.

The commission also must sign off on a myriad of enforcement cases against alleged corporate wrongdoers. Those cases include a proposed settlement with Wall Street brokerages over alleged tainted advice by their stock analysts during the bull market.

Beyond any legal settlements with brokerages, Goldschmid suggested that he is likely to press for hard-hitting industrywide rules governing analysts' conduct.

"The basic goal would be to increase the honesty, accuracy and credibility of analysts," he said, though he declined to be more specific about his plans.

On some issues, Goldschmid may be unable to cast a vote: While at Columbia, he also worked as a part-time attorney at Weil, Gotshal & Manges, a New York law firm, where he did work for the National Assn. of Securities Dealers and the Nasdaq Stock Market as well as for Merrill Lynch & Co. and Lehman Bros. At the SEC, he has recused himself for one year on matters involving all of them, he said.

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Pitt's Counterweight

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