SEC Chief Insists He Won’t Quit
Amid accusations that the White House has failed to act aggressively to clean up corporate accounting abuses, the chairman of the Securities and Exchange Commission, Harvey L. Pitt, on Sunday defended the administration’s performance and said he would not resign.
For their part, Democrats called for President Bush to “restore integrity to the White House” by releasing information on his 1990 sale of stock in a Texas oil company before it announced a significant decline in earnings.
The verbal jousting came on the eve of today’s Senate vote on a far-reaching accounting reform bill that seeks to address reports of financial irregularities in some of the largest U.S. firms.
Those revelations continued Sunday with the disclosure of evidence that WorldCom Inc. had engaged in fraudulent accounting practices in 2000, earlier than suspected last month when nearly $4 billion in accounting irregularities led the SEC to file fraud charges against the communication giant.
The documents, released by House Energy and Commerce Committee Chairman W.J. “Billy” Tauzin (R-La.), also showed that employees challenged the company’s accounting and, in one case, raised those concerns with outside auditor Arthur Andersen.
Andersen officials have suggested that WorldCom Chief Financial Officer Scott Sullivan was to blame for the financial irregularities, and they claim important information was withheld from auditors.
“This is way beyond aggressive accounting. This is Fraud 101,” Tauzin said on ABC’s “This Week.” His committee is investigating the accounting at several major companies, including WorldCom, Enron Corp. and Global Crossing.
Also Sunday, one of American’s largest corporations, Coca-Cola, announced that it would begin treating stock option grants made to employees as an expense, an action that many financial observers--including Federal Reserve Chairman Alan Greenspan and investor Warren Buffett, Coca-Cola’s largest individual shareholder--say would offer a fairer assessment of a company’s financial picture.
Responding to the accounting scandals that have caused economic and political jitters from Wall Street to Washington, Pitt on Sunday took aim at his critics, denouncing their “politically crass sound bites.”
He defended the SEC, saying the agency is investigating a “staggering” number of corporations. He did not specify how many cases of corporate wrongdoing are under investigation. But he said the agency would get a better gauge of problems “lurking out there” after an Aug. 14 deadline for the heads of the largest public companies to certify the accuracy of their financial statements.
“I have absolutely no intention of stepping down,” the nation’s top securities regulator told CBS’ “Face the Nation.” “I believe I enjoy the confidence of the president, and I’m certain if I don’t, he’ll let me know.”
But Sen. John McCain (R-Ariz.) renewed his call for Pitt’s resignation, contending that the SEC chairman’s past work as a lawyer for the accounting industry makes him unsuitable for the job.
“We have now a crisis of confidence on the part of the American investor,” McCain told NBC’s “Meet the Press.” “That confidence can only be restored by individuals whose records are completely untainted by any charge or allegation of conflict of interest.”
Pitt called renewed scrutiny of Bush’s 1990 sale of stock in a company of which Bush was a director “ancient history.” Then-businessman Bush sold the Harken Energy Corp. stock shortly before the company reported a sizable loss.
Pitt said on NBC’s “Meet the Press” that the matter had been thoroughly investigated and is now closed. But he said he would make the SEC file public at the president’s request.
Sen. John Edwards (D-N.C.) urged Bush to do just that.
“This president ran on the idea that he was going to restore integrity to the White House, that he would be forthright with the American people,” Edwards told CNN’s “Late Edition.” “He has an opportunity now to prove that.”
Sen. Joseph I. Lieberman (D-Conn.) agreed. “I don’t know that anything illegal happened, but there are a lot of things you can do that are legal but very wrong,” he told ABC’s “This Week.” “It is critically important that the president of the United States, in following through on the strong language that he spoke on Wall Street earlier in the week, open up the files and let the American people see what was there.”
Commerce Secretary Donald L. Evans defended Bush, dismissing continuing talk about the stock sale as “nothing but political garbage that the American people are sick and tired of.”
Referring to one high-profile case, Pitt vowed that the SEC would “follow the trail wherever it leads” in its probe of accounting practices at Halliburton Co., a Texas-based oil services business that Vice President Dick Cheney once led.
“No one gets a pass,” he said.
House Minority Leader Richard A. Gephardt (D-Mo.), however, suggested that Pitt remove himself from any involvement in the Halliburton probe.
Pitt said he believes the accounting problems are the work of a “few rotten apples.” But he also pledged that the SEC “is going to go after these people, and people who do hard crime will do hard time.”
But Sen. Paul S. Sarbanes (D-Md.), who drafted the Senate accounting bill, said: “It’s not just a few bad apples who need to be severely punished.... The system is not working right.” He called on the president to get behind the legislation in “a very strong way.”
Sarbanes’ bill would establish an independent accounting oversight board to replace the accounting industry’s self-policing approach to discipline. It would also establish new penalties for corporate fraud and new financial disclosure requirements for public companies.
While agreeing with many of the goals of Sarbanes’ bill, the White House has expressed concern that it could create a turf war between the new board and the SEC.
A bipartisan group of senators plans today to try to strengthen the bill further.
McCain and Sen. Carl Levin (D-Mich.) have pushed to require companies to deduct from earnings the value of stock options awarded to executives. They hope to get a vote on an amendment that would refer the politically hot issue to the Financial Accounting Standards Board, which writes rules for the accounting profession.
But they face stiff opposition from business groups, which fear such a move could slash bottom-line earnings across the corporate landscape as well as jeopardize one of corporate America’s most popular forms of compensation.
“The problem, in my opinion, is not stock options, but the way in which a small group of greedy and unethical corporate executives used stock options,” Lieberman said.
Sarbanes’ legislation also calls for increasing the SEC budget.
Pitt praised Bush’s call for the SEC to receive $100 million more, but he was more cautious in endorsing bipartisan legislation that would give the agency $300 million more. “I support more money, but I also support responsibility,” he said. “Somebody has to do a study first.”
In the WorldCom case, five boxes of documents provided to Tauzin’s committee on Thursday--the deadline for receipt of records from the Clinton, Miss.-based company--showed that on several occasions, employees raised issues about the fraudulent accounting with senior WorldCom executives, who dismissed their concerns. The company has acknowledged improper accounting of nearly $4 billion.
In 2000, for example, finance employee Troy Normand was so distressed by the company’s accounting practices that he considered leaving the company. He went to chief financial officer Scott Sullivan and comptroller David Myers with his fears, but “they all assured him, ‘Oh, everything’s fine,’ ” Tauzin said.
Normand asked for a severance package but was refused, Tauzin said. “He knows his corporation is going downhill and he, unfortunately, is watching as they’re cooking the books in front of him.”
Tauzin noted, “There’s quite an insight in these documents as to how corporate greed took over.”
In another document described by Tauzin, WorldCom employee Stephen Brabbs, who managed the company’s European and Asian accounts, says he told people at Arthur Andersen about an improper $33-million reduction of expenses in the international division in the spring of 2000--made by his U.S. bosses after he had closed the books.
When Brabbs told his WorldCom superiors that he had informed people at Andersen, his bosses got upset and Sullivan exerted pressure, Tauzin said.
“This Week” anchor George Stephanopoulos quoted from a Brabbs’ letter: “Pressure was exerted, and we were instructed to make the entry. This pressure, we understood, was from Scott’s office specifically.”
Associated Press contributed to this report.
