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SEC Orders Probe Into Audit Oversight Chief’s Appointment

BY Admin  October 31, 2002 at 12:26 PM EDT

The move follows word that Pitt concealed potentially damaging information about Webster from other SEC commissioners.

SEC Commission spokeswoman Christi Harlan told reporters Thursday that Inspector General Walter Stachnik would conduct an internal investigation, describing the move as “the normal route” for staff inquiries.

“This is simply a look at the process and it is not a review of Judge Webster,” she said.

Harlan said the opening of the investigation follows the disclosure that Pitt did not notify the four other commissioners ahead of last Friday’s SEC vote that Webster, a former FBI and CIA director, had led the audit committee for U.S. Technologies, a company facing fraud charges.

The 78-year-old Webster himself revealed his past connection with the company facing fraud charges in an interview with The New York Times Wednesday.

Webster said he had told Pitt and SEC Chief Accountant Robert K. Herdman about his role at U.S. Technologies days before the vote to install him as the head of the SEC’s new Public Company Accounting Oversight board.

“I told them that people are making accusations,” Webster told The New York Times. “I said if this is a problem, then maybe we shouldn’t go forward.”

Webster said Pitt had reassured him that the SEC had reviewed the issue and said it was not a problem.

The former CIA and FBI director told The New York Times he called Pitt on Monday, three days after his appointment, to say he heard the government had begun to investigate possible fraud by U.S. Technologies’ chief executive officer. SEC officials said Pitt did not notify the other commissioners of that conversation either, the Times reported.

In a vote split along party lines, the SEC commissioners last Friday appointed Webster to chair the new oversight board, established by the 2002 Sarbanes-Oxley Act as part of an attempt to crack down on corporate and accounting fraud, following the Enron and Arthur Andersen scandals. The two Democratic commissioners had lobbied for another candidate, John H. Biggs, whom they believed would push for tougher oversight and regulation of the accounting industry.

After the controversial vote, Senate Banking Committee Chairman Paul Sarbanes (D-Md.), co-author of the corporate reform bill, called for Pitt’s resignation, alleging the SEC head was heavily influenced by the accounting industry.

Despite several demands for Pitt’s resignation, President Bush, who had selected Pitt to head the SEC in 2001, has steadfastly supported the embattled SEC chief.

Pitt has declined to comment on Webster’s appointment and the U.S. Technologies inquiry.