SEC Chief’s Blind Eye
How’s this for odd timing in the post-Enron era? At the same moment the Justice Department is indicting the accounting firm Andersen for its role in a debacle that surely will cost thousands their retirements, the chairman of the Securities and Exchange Commission is speaking out against cracking down on the industry that allowed such corporate abuse.
Nervous investors long for someone to restore the public’s faith that capital markets are free and fair. But SEC Chairman Harvey L. Pitt told the House Financial Services Committee Wednesday that Congress should back off from regulating auditors. Pitt does not deny that the industry has troubles. Appearing Thursday before the Senate Banking Committee, he acknowledged that Enron had shaken public confidence in corporate governance and accounting regulation and he suggested that the 1990s bull market had pushed corporations to fudge and obscure “potentially adverse results.” In other words, “to lie.”
Sens. Christopher J. Dodd (D-Conn.) and Jon Corzine (D-N.J.), members of the Banking Committee, have proposed tough regulations that include forcing companies to switch auditors every four years. Pitt, like others in the Bush administration, sees any new regulation as onerous and says it would only hamper industry. Instead, he wants to let the SEC and the free market handle all problems.
He is on the right track in arguing for stronger enforcement by the SEC, more timely disclosure statements and stiffer penalties for senior corporate officials who provide misleading information. He also wants to create a private-sector “Public Accountability Board” to help oversee what little regulation he does embrace. None of this would cause crooked accountants to lose sleep.
The board that Pitt proposes would not wield subpoena powers. What’s more, Pitt refuses to tackle the most egregious problem, namely the lavish consulting fees that auditing companies can collect from the very corporations whose books they are supposed to police. (About half of the $52 million that Enron paid Andersen in 2000 consisted of such fees.)
Lawmakers must decide whether to heed their angry, jittery constituents or Pitt. We suggest the former. Move ahead with legislation to rein in the auditing industry, whose work investors must trust completely if they are to regain full faith in capitalism. For his part, Pitt could still play a constructive role. A lawyer who amassed millions representing big accounting firms, he could stop trying to protect his former employers and worry about protecting his new client--the public.
