SEC chairman calls furor an `unnecessary diversion'

Pitt expects more parleys with those under scrutiny

May 24, 2002|By Frank James | Frank James,SPECIAL TO THE SUN

WASHINGTON - Harvey L. Pitt, the chairman of the Securities and Exchange Commission who has come under heavy criticism recently for meetings with executives of companies being investigated by his agency, defended his need to hold such meetings as essential to his primary role to protect shareholders.

Offering no apologies to critics, Pitt said he'd likely have such meetings again, though he has put in place a process at his agency meant to reassure the investing public that all such meetings are strictly above board.

Sounding at times self-righteous, Pitt also downplayed the furor over such meetings as an "unnecessary diversion" from the regulatory agency's important agenda of improving both its enforcement efforts and corporate financial reporting.

In response to questions from journalists yesterday, Pitt used a "hypothetical" situation with facts sounding very similar to those surrounding the Chicago-based Andersen accounting firm. The firm has fallen on hard times because of its destruction of records related to its audits of Enron Corp., the bankrupt Houston-based energy giant.

"I don't intend to have any troublesome meetings," said Pitt, meaning sessions with officials from companies under SEC investigation in which enforcement matters were discussed. But in what he twice stressed was only a hypothetical, he said he might meet with the chief executive officer of an accounting firm under investigation that was also having financial problems and in danger of ceasing to exist.

Such a meeting could be necessary to "make arrangements that the SEC supervises to be certain that public investors and the companies that receive those audits are protected," Pitt said.

"It may be your view that that's a meeting that shouldn't be taken," he said. "It's not my view. I can't help it." Pitt didn't say whether such a meeting with Andersen officials had occurred.

"That's why when you ask me for an absolute guarantee that no one under investigation will ever, ever have a meeting, the answer is, that wouldn't be in the public interest," Pitt said. "On the other hand, if the purpose is to talk about the investigation, then they ought to be meeting with our enforcement division."

If there were an absolute ban on his ability to meet with officials from companies under investigation, "given the number of investigations we have going we would not be able to regulate the markets," he said.

Controversy has swirled around Pitt's private meetings with corporate officials after it became publicly known that he met with the heads of KPMG, the large accounting firm, and Xerox Corp., the electronic imaging company. Both have been under SEC investigation, KPMG for its audits of Xerox's books. The SEC sued Xerox last month, alleging that the company used accounting tricks to fatten its earnings by $1.5 billion and mislead investors.

SEC Commissioner Isaac Hunt, among others, has voiced objections to Pitt's meetings with companies under investigation by the agency, saying it is a deviation from an informal practice against such interaction.

The issue is especially touchy for the 57-year-old Pitt because before rejoining the SEC - he started his career there in 1968 and became its general counsel in 1975 - he represented KPMG and other top accounting firms as one of the nation's top securities lawyers.

His role as a private-sector lawyer with these clients has prompted some critics to question his judgment in holding such meetings, saying it creates, at the very least, the appearance of a potential conflict.

The White House has said Pitt still enjoys President Bush's strong support.

Frank James writes for the Chicago Tribune, a Tribune Publishing newspaper.

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