Goodbye, Mr. Pitt

October 13, 2002

WHAT GOOD IS having a cop on the beat if he doesn't have the resources to be a watchdog and if few believe he'll aggressively pursue the bad guys? That's the Securities and Exchange Commission, even as prospects for a national economic recovery rest partly on the agency showing more teeth on corporate corruption.

Last summer, with passage of the Sarbanes-Oxley bill to tighten regulation of accountants, it appeared the SEC would be given a badly needed funding increase to step up policing of corporate America, Washington would have the bipartisan will for that, and even SEC Chairman Harvey L. Pitt, despite suspected softness toward his former accounting clients, would get tough.

Now, summer's promise is devolving into a lost opportunity.

At immediate issue is who'll head the new Public Company Accountancy Oversight Board, the core of SEC reform efforts, created by Sarbanes-Oxley to rein in accounting abuses. First, reports hailed the pending appointment of John H. Biggs, chairman of TIAA-CREF, the giant pension and mutual fund company, and a reform champion. But this was followed by leaks that Mr. Biggs didn't have a lock on the job due to GOP and accountants' pressures -- which sent Democrats again calling for Mr. Pitt's head.

In Europe last week, the SEC chief accused his critics of trying to "politicize an independent agency." Problem is, Mr. Pitt already has done a real good job of that -- by perception, if not substance. And when it comes to policing, both matter.

Last fall, Mr. Pitt got off to a bad start with a speech to accountants in which he vowed a less adversarial SEC. He didn't literally promise "a kinder and gentler" agency but came close, saying the SEC "has not, of late, always been a kinder and gentler place for accountants." More recently, Mr. Pitt raised more eyebrows by holding private meetings with executives of some firms under SEC investigation.

Meanwhile, New York Attorney General Eliot Spitzer was becoming a media darling for his aggressive moves against Wall Street for letting investment banking profits skew stock analysts' ratings -- making Mr. Pitt look even more toothless.

Congress -- which has long underfunded the SEC and which has not yet delivered on last summer's promise of a roughly 70 percent budget increase -- also shares in the blame. The SEC simply lacks enough examiners to keep up with corporate filings, deeply reviewing far fewer, percentage-wise, than 10 years ago. That sad staffing underlies what a recent congressional report called a "catastrophic failure" by the SEC to detect Enron's frauds in the 1990s, long before Mr. Pitt came on board 14 months ago.

Congress needs to increase SEC funds, or let it fund itself from its $2 billion in annual fines and fees, now sent to the Treasury. The accountancy board absolutely needs a credible leader like Mr. Biggs. And Mr. Pitt must be replaced by a believable cop.

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