Today in Finance for December 10, 2002

Investment Banker Named to Head SEC

William Donaldson, co-founder of DLJ, is nominated to top securities watchdog spot. Plus: Current Tyco management accuses former Tyco management of short-swing stock trades; Kmart restates, while the SEC goes after ex-WorldCom finance executives.

Stephen Taub
CFO.com | US

December 10, 2002

President Bush has nominated William Donaldson, the powerful Wall Street investment banker, to chair the Securities and Exchange Commission. If confirmed by the Senate, Donaldson will replace Harvey Pitt, who resigned amid a flurry of controversy on November 5.

The 71-year-old Donaldson heads his own New York-based investment firm, and is best known on The Street as co-founder of Donaldson, Lufkin and Jenrette (DLJ), the nimble investment bank that was especially adroit at underwriting junk bonds.

President Bush called Donaldson "an experienced and dedicated public servant. He's a good man." Donaldson's nomination is being generally hailed by securities industry experts as a good choice.

"This is a good appointment, and frankly I'm amazed that they got someone of his stature and reputation to take the job amid all the controversy swirling around the SEC," says Professor Charles Elson, chair and director of the Center for Corporate Governance at the University of Delaware. Elson points out that Donaldson knows the financial, corporate, and investor markets, and has a similar pedigree to former SEC chair Arthur Levitt, "except that Levitt didn't have as much corporate experience as Donaldson." And given the conflict-of-interest suspicion that weighed down Harvey Pitt's tenure, Elson believes that Donaldson will be balanced in his decision making.

The market reacted favorably to the news that one of its own would be the top securities watchdog. When word got out that Donaldson had been nominated, the technology sector rebounded from Monday's heavy losses and blue chip stocks extended their gains, according to CBS Marketwatch data.

After selling DLJ to the Credit Suisse Group in 2000, Donaldson served as chairman of Aetna Inc. until 2001. He served as chairman and CEO of the New York Stock Exchange from 1990 until 1995, following the October 1987 stock market crash. So he's an old hand at taking the helm during a crisis in investor confidence.

He is also co-founder and former dean of Yale University's Graduate School of Management.

Donaldson knows his way around Washington too. He was counsel to Vice President Nelson Rockefeller in 1975 and served as undersecretary of state under Henry Kissinger from 1973 to 1975.

Donaldson's nomination must be confirmed by the Senate before he becomes the SEC chairman. The Republican Senate victory in November will give the GOP a slight 51-to-48 advantage over the Democrats when the session resumes in early January. Independent James Jeffords of Vermont will likely vote with the Democrats, The New York Times reports.

Donaldson is reportedly not commenting at length about his nomination until after he is confirmed. However, the Korean War veteran and U.S. Marine offered some homespun words of wisdom from his mother: "It's time for all of us to pull up our socks."

Donaldson's nomination comes a day after President Bush appointed CSX railroad executive John Snow to head the Treasury Department, replacing former Treasury Secretary Paul O'Neill, who resigned on Friday.

Short-Swing and a Miss? Tyco Sues Swartz, Kozlowski
Is this the third strike against Dennis Kozlowski?

On Monday, the former Tyco International Ltd. chief executive officer was reportedly sued by the Bermuda-based conglomerate for racking up more than $40 million in so-called short-swing stock trades. Ex—Tyco CFO Mark Swartz was also said to be named in the suit.

According to reports, the lawsuit alleges that Kozlowski and Swartz made dozens of these kinds of trades beginning in August 2000.

Bear in mind that Securities and Exchange Commission rules allow companies to confiscate any short-swing profits made by corporate insiders who buy and then sell their company's stock within a six-month period.

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