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Friday, 1 November, 2002, 10:56 GMT
SEC row erupts over auditor boss
SEC chairman Harvey Pitt (left) and William Webster, who has been chosen to oversee a new accounting oversight board.
Mr Pitt (left) backed Mr Webster's selection as chairman
The US Securities and Exchange Commission has come under pressure following confusion over the appointment of a new auditing chief.

Less than a week after William Webster was appointed chairman of a new board to oversee corporate auditors, an inquiry has been launched into his selection.

Mr Webster - who has served as director of both the CIA and the FBI - was previously on the board of a firm facing fraud charges.

We, of course, now need a full accounting of what took place

Senator Paul Sarbanes
The chairman of the SEC, Harvey Pitt, knew of Mr Webster's involvement with a small Washington, DC-based company, but failed to disclose it to fellow board members.

Mr Pitt called for the investigation after admitting he withheld the information from other members of the watchdog's board.

Calls are now growing for Mr Pitt to be replaced following the botched appointment.

In essence, Mr Pitt has asked for an examination into his own actions since he pushed for Mr Webster's selection to head a group intended to address public concern about corporate accounting scandals.

The new oversight board is the cornerstone of an accounting reform bill, the Sarbanes-Oxley Act, Congress passed over the summer.

Economic fallout

In response, Senator Paul Sarbanes, the co-author of the bill, reiterated his distrust of the process by which Mr Webster was chosen.

"The failure of the chairman to disclose to the other members of the SEC prior to [Friday's] vote... shows a fundamental lack of understanding of the responsibilities of the chairman of the SEC," Mr Sarbanes said.

SEC chairman Harvey Pitt
Mr Pitt once again faces criticism for his actions
"We, of course, now need a full accounting of what took place."

Mr Sarbanes joined two other congressmen in requesting the General Accounting Office (GAO) look into the process by which nominations for the members of the oversight board were vetted.

He said the disclosure adds to investor distrust of the SEC and its chairman and further weakens the underpinnings of the US economy.

Bitter dispute

Mr Webster, reports said, had been forthcoming about his role as the head of a three-member audit board at US Technologies.

He told Mr Pitt while being vetted for the position to head the Public Company Accounting Oversight Board.

The company has become the subject of a lawsuit by investors who say they were defrauded of millions of dollars.

The publicly traded firm was delisted from the Nasdaq Exchange in late September, and Mr Webster relinquished his leadership position on the audit board on 19 July.

Mr Webster is also on the board of Regulatory DataCorp, a company set up by 15 of the world's biggest banks to share information about customers so as to help satisfy anti-money laundering regulations.

This does shake one's confidence in Judge Webster [and] SEC Chairman Pitt

Henry Hu
law professor

Mr Webster, backed by Mr Pitt, was chosen over John Biggs, a pension-fund manager favoured by investor groups, after a contentious 3-2 vote by the SEC on Friday.

Despite the disclosure, Mr Pitt elected not to tell other members of the SEC board.

"This does shake one's confidence in Judge Webster... as well as in the judgment, I'm afraid, of SEC Chairman Pitt," said Henry Hu, a corporate and securities law professor at the University of Texas.

Protecting investors

The SEC's two Democrats, Harvey Goldschmid and Roel Campos, rejected Mr Webster in Friday's vote, saying the selection process was rushed and incomplete.

An angry Mr Goldschmid said, "as a whole, the selection process has been inept," following Friday's vote.

Mr Pitt, already mired in controversy, has been besieged with calls for his resignation mainly from Democrats.

He has been a lightning rod for criticism since his nomination six months after George W Bush became president.

Critics said then - as now - that Mr Pitt's previous career as a lawyer defending accounting firms made him a particularly bad choice to head the SEC, an agency dedicated to protecting investors.

The White House said it was not aware of Mr Webster's role at US Technologies, the firm in question but reaffirmed its support for Mr Pitt.

Professor James D Cox, Duke University
"The internal control system is in disarray"

Politics of regulation

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See also:

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