Michael Harris
Wednesday, July 17, 2002

It is an unfortunate byproduct of being a public figure that political gamesmanship begets trashing people based not upon fact but upon the potential for political gain. Truth becomes excess baggage.

Anyone who knows Harvey Pitt knows he does not deserve the tirades from persons like Sens. Daschle and McCain. I do not know Harvey Pitt well and have had probably no more than brief, 15-second conversations with him on a limited number of occasions, but because we started at the SEC the same week – he in Washington and I in New York – I have had the opportunity to observe his successful rise to the pillar of the securities bar.

I have read (and learned from) many of the sophisticated articles he has authored and attended seminars that he has chaired. No one deserved to be nominated as SEC chairman more than Harvey.

His predecessor as SEC chairman, Arthur Levitt, has been widely hailed as an effective leader of the SEC and friend of the average investor. As an SEC alumnus, I join in this praise. But let's compare the records:

• Since its December release warning about the use of pro forma financial information, closely followed by trailblazing "guidance" on disclosure of critical accounting policies, the SEC has issued five significant rule proposals designed to substantially increase disclosure of financial and other material information.

  Additionally, it has issued an important statement concerning important financial disclosure and very recently issued a novel order requiring sworn certifications of financial statements, described below.

• At the same time, Pitt's creative call for near real-time disclosure has been advanced by two of these proposals.

• During the eight years of Levitt's tenure, the SEC passed fewer substantive new measures that materially enhanced disclosure in contrast to "technical" changes and was less active in advancing enhanced public disclosure.

• The SEC's recent order (which arguably exceeded its powers if considered a rule change) requiring CEOs and CFOs of companies with $1.2 billion in revenues to certify under oath the fairness of their quarterly and annual financial results is another creative effort to stem the tide of appalling financial fraud.

• Pitt's call for real-time enforcement (which carries with it an increasing risk that innocent people will be caught up in the rush to judgment) is another recognition by him that he will lead the fight in protecting the public interest and protect investors.

  The recent WorldCom suit is one visible example. The SEC staff filed its suit in record time and the interim relief was extraordinary. The order requiring WorldCom to file a written statement of who did what and when was unprecedented, although Pitt asserted that the SEC has had the power from its inception.

  His outrage over WorldCom's first response was not that of someone who coddles big business. Also creative and somewhat innovative was the order preventing destruction of documents à la Arthur Andersen.

• At the same time, the SEC Enforcement Division has opened a record number of investigations and the SEC has filed a record number of lawsuits this year. It has issued 399 enforcement actions, compared with 484 in all of 2001! The SEC has frozen assets in 50 cases this year, seven more than in all of last year. It has brought a record 30 actions against corporate managers seeking to prohibit them from ever holding corporate office again!

• Although not the fault of Levitt or the Clinton administration, the monstrous frauds, with the possible exception of WorldCom, all occurred or began prior to the appointment of Pitt – Enron, Global Crossing, Rite Aid, Xerox, Waste Management. The list goes on.

Both parties deserve equal blame. Although legislation mandated last year prescribes pay parity between the SEC staff and staff members of other financial regulators, Pitt has publicly called for more money and staff. Do not blame him for the Bush administration's mistake in allocating the use of our tax dollars!

Has he been perfect? No. His kinder and gentler overture to the accounting profession was an unfortunate byproduct of his professional experience representing the giants of the accounting world and his philosophy. His private meeting with the new CEO of KPMG was another mistake, although the media's typical distortion gave the false slant that as SEC chairman he could affect the SEC's ultimate decision. The simple truth is that recusal means he can have no effect on any recommendation by the Enforcement Division.

Pitt's critics seemingly would prefer a person whose professional experience has been as a staff member of the Environmental Protection Agency or the Bureau of Indian Affairs. But isn't that absurd? Don't we need someone with immediate expertise in the securities laws, accounting and the financial markets?

By the way, the SEC Enforcement Division has always been largely immune to political pressures. I have not read anything – or heard anything from former Enforcement colleagues – that leads me to believe the tradition best exemplified by the leadership of Stanley Sporkin has been eroded.

Let's stop playing politics with Harvey Pitt's integrity and that of the overworked SEC staff!

Michael Harris is a Florida attorney who specializes in securities law.

Read more on this subject in related Hot Topics:
Bush Administration
Enron
Global Crossing Scandal

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