Pitt Stop: Commission Chairman Stepping Down

One concession speech was made very early on election night: Harvey Pitt tendered his resignation as chairman of the Securities and Exchange Commission.

Pitt sent a letter to President George W. Bush offering to leave his post "as soon as he can help the president's staff ensure a smooth transition of leadership," Christi Harlan, the Commission's spokeswoman, told Bloomberg.

White House spokeswoman Claire Buchan said President Bush accepted Pitt's resignation, according to Reuters.

"Unfortunately the turmoil surrounding my chairmanship and the agency makes it very difficult for the commissioners and dedicated SEC staffers to perform their critical assignments," Pitt wrote in his letter to Bush. "Rather than be a burden to you or the agency, I feel it is in everyone's best interest if I step aside now."

Pitt, a former Wall Street lawyer, has been in hot water even since he took the reins of the SEC last year. Critics of Pitt feared the new Commission chairman would pander to business because of his past work with Big Five firms and investment banks.

Last summer, the SEC chair angered his backers in the White House by suggesting to Congress, without first consulting the administration, that the Commission be made the equal of the Federal Reserve Bank.

Critics, particularly Democratic legislators, also questioned Pitt for meeting privately with executives from former clients, including investment bank Goldman Sachs and accounting firm KPMG. Then, in October, the Enron scandal broke, followed by an endless stream of corporate restatements, high-profile bankruptcies, and criminal investigations. The lack of confidence in corporate bookkeeping helped push the stock markets downward.

In July, Arizona Republican Sen. John McCain called on Pitt to resign.

The final undoing for Pitt came when he tried to fill the post of chairman of the newly created Public Company Accounting Oversight Board (PCAOB). Pitt first tried to convince former Federal Reserve chairman Paul Volcker to take the job, but Volcker turned him down.

Volcker's selection would have brought instant credibility to the new oversight board, and Pitt might have been able to move on to more pressing matters.

Instead, the SEC chair found himself embroiled in more controversy when he tried to bring in John Biggs to head the PCAOB. Biggs, who recently retired as head of TIAA-CREF (New York state's teachers pension fund), has a reputation as a shareholder activist. When news of his imminent selection was leaked to the press, the accounting industry, along with prominent Republican lawmakers, mobilized against Biggs. Pitt quickly backed off his selection.

That set up Pitt's fateful decision to switch his allegiance to former CIA and FBI director William Webster. Webster seemed a peculiar choice, since he had no real background in accounting.

Webster did have some first-hand knowledge of accounting scandals, however. Turns out the ex-CIA chief headed the audit committee for US Technologies Inc, a company that is currently facing fraud charges.

Webster reportedly informed Pitt of his relationship with US Technologies, but the SEC chairman apparently withheld that info from his fellow commissioners. Last week, in a hotly contested vote, the commissioners split down party lines in selecting Webster to head the accounting industry oversight board.

The Webster fiasco cost Pitt his job. In his letter to Bush, he wrote: "The issues confronting our capital markets are enormous, and I am pleased I was able to play a role in starting to restore investor confidence."

Apparently, Pitt failed to restore White House confidence in its SEC chair. Some observers were surprised by the timing of his announcement. But others hinted that the election night resignation was by design. The implication? Pitt's stepping down would be lost in the hubbub surrounding the retaking of the Senate by Republicans.

Possible successors to Pitt include former top SEC lawyer James Doty, corporate lawyer Gary Lynch, or former federal judge Stanley Sporkin.

But sources also said a replacement would not be needed right away, and an interim chairman might be appointed from among the two remaining Republican commissioners -- Paul Atkins and Cynthia Glassman.

Sen. Paul Sarbanes (Dem.-MD), co-author of the Sarbanes-Oxley Act, which mandated the creation of the PCAOB, said he had called for Pitt's resignation on two occasions.

"I am pleased we are moving forward, and we hope the White House will nominate a top reformer, who will enforce the provisions of Sarbanes-Oxley," he said through a spokesman.