- The Washington Times - Friday, May 31, 2002

Harvey L. Pitt, the embattled chairman of the Securities and Exchange Commission, seems to be taking off the kid gloves and saying to his critics: OK, no more Mr. Nice Guy. From here on out, look for tougher, smarter regulation of the marketplace, and woe betide any company or auditor out to commit fraud.
Mr. Pitt has been under fire on two fronts virtually throughout his 10 months on the job. One is that he is moving too timidly to correct accounting abuses that allowed unwarranted claims of corporate earnings and hid true performance from investors. The other is that he appears inclined to meet privately with insiders and let them work out their own policing, sidestepping government action to the annoyance of some in Congress as election season nears.
Pressed hard for action after the collapse of Enron and other corporations, Mr. Pitt and his commission came up with new ethics rules for stock analysts. But advocates of aggressive investigation, like New York Attorney General Eliot L Spitzer, called the rules tepid and tardy, and Wall Street Journal and Financial Times editorials suggested Mr. Pitt resign. On top of that came conflict-of-interest suspicions arising from his private meetings. It is easy to see why he reached out to the media, arranging to talk with senior correspondents at breakfast the other day.
He appealed to them over sausage and eggs to help him spread the word on his mission to bring "stringent, meaningful, effective reform to a system in which people are hellbent on committing fraud." He said he would do that in a new Public Accounting Board now in the works, to be unveiled later this year. He made it clear he is in a race to set up his system before New York or some other state steps in or Congress passes legislation to impose its version. Whatever emerges from Capitol Hill bids fair to be an unwieldy mish-mash, given the heady atmosphere of bitter bipartisanship, tireless lobbying by accounting firms and generous funding of incipient election campaigns.
"We're in the business of investor protection," Mr. Pitt said. "We have a lot of work to do in developing the toughest enforcement program possible." He promised "smarter regulations" in cracking down on auditing firms that fail to give ethically defensible, as well as legally sound, reports on corporate finances, because of consulting arrangements or any other reason.
Mr. Pitt assured reporters he feels "uniquely qualified" to take steps that will restore public confidence in the stock market, and he sees no need for further congressional action. He said he would do all this "as transparently as possible." Almost in the next breath, however, his expressed devotion to transparency fled. He resisted reporters' repeated attempts to get him to say anything about the highly criticized meetings he has had, including those with financial mogul Donald Trump and with Anne Mulcahy, chief executive officer of Xerox, as well as Eugene D. O'Kelly, chief executive of KPMG, the accounting firm he once represented as a private attorney whose auditing of Xerox books is under SEC investigation.
Xerox has agreed to pay a $10 million civil penalty, biggest ever of its kind, to settle an SEC suit charging it with "accounting tricks" to boost earnings by $1.5 billion and shield true earnings from investors. The KPMG incident reached almost comic proportions. CEO O'Kelly at first boasted in a memo to employees that in his "first official act" he met privately with Mr. Pitt and urged him to drop SEC investigation of KPMG's auditing of Xerox. Mr. Pitt denied that, and Mr. O'Kelly backtracked, saying he never mentioned Xerox by name at their meeting.
Mr. Pitt adamantly refused to discuss such private sessions beyond muttering that some reported in the media "never took place." He left the impression that maybe there had been an extraordinary coming-together of the policeman and the policed sort of like J. Edgar Hoover having a tete-a-tete with Lucky Luciano.
Questions along those lines, Mr. Pitt said, were "unnecessary diversions" from his mission of bringing law and order to a troubled marketplace. Still, some of us thought the Wizard might be saying, "Pay no attention to the man behind the curtain, Dorothy!"

Warren Rogers is a veteran Washington newsman who has covered the White House and national politics since Harry Truman.


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