Let’s replay the sorry recent saga of the SEC’s accounting oversight board debacle:
(1) Back in September, SEC Chairman Harvey Pitt told John Biggs of TIAA/CREF — according to Democratic members of the SEC and Biggs himself — that Biggs would be appointed to head a new accounting board, one promulgated in the wake of the past year’s scandals to restore some sense of trust in the profession.
(2) Biggs was perceived as being too tough on big accounting, and Pitt got cold feet or succumbed to pressure (he denies the latter) and pulled the plan to nominate him.
(3) Pitt chose former FBI chief William Webster to head the accounting board and rammed the appointment through the SEC in a party-line 3-2 vote. Webster’s lack of experience in corporate accounting was not, the world was assured, a problem.
Today, we learn that Webster actually told Pitt before the vote about what seems like a serious and highly relevant matter: Webster had till recently headed the audit committee of a corporation, U.S. Technologies, that was being charged with fraud.
Read this from the New York Times account:
The small publicly traded company, U.S. Technologies, is now all but insolvent and it and its chief executive, C. Gregory Earls, are facing suits by investors who say they were defrauded of millions of dollars. The suits contend the misconduct occurred in late 2001 and this year. That was after the three-person audit committee, headed by Mr. Webster, had voted to dismiss the outside auditors in the summer of 2001 after those auditors raised concerns about internal financial controls. |
So Webster told Pitt about this, and the response of Pitt’s SEC staff was “that the staff concluded that there was nothing worthy of passing on to other commissioners or that would disqualify Mr. Webster.”
Nothing worthy of passing on to other commissioners, who were about to enter a hotly contested vote on Webster’s appointment? When the SEC reviews the behavior of corporate officers and finds, for instance, that they have withheld key information from shareholders before a vote, the commission calls it “fraud.” This is why corporate reports, when prepared responsibly, are so full of disclaimers and disclosures of risk.
Pitt, who has always seemed barely conscious of the ethical dimensions of his role, can now legitimately be charged with having rigged a fraudulent vote on the accounting board position. The only seemly thing for William Webster to do now would be to refuse to serve. The only seemly thing for Pitt to do would be to resign.
Instead it seems that there is to be an investigation into the affair by — who else? — the SEC itself.
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