Looking Ahead at the SEC

NEW YORK -- Harvey L. Pitt presided over a meeting of the Securities and Exchange Commission on Wednesday, but across Washington and Wall Street the focus was already on who might next occupy Pitt’s chair at the table.

The Bush administration faces a major challenge in naming a new SEC chairman to replace Pitt, who resigned under pressure Tuesday.

Many securities law experts said Bush must seek candidates who not only are above reproach, but who also could forge consensus on the now badly fractured SEC board.

“You’ve got to find someone who is able to form coalitions and who has a more statesman-like personality” than Pitt, said John Coffee, a Columbia University law professor. “All the great SEC chairmen have been consensus builders.”

The White House also may have a second vacancy to worry about: William H. Webster, handpicked by Pitt in late October to head the nation’s new accounting oversight board, may be pressured to follow Pitt out the door, many observers said.

Pitt told Bush on Tuesday that he would depart as the nation’s top markets regulator, conceding that the furor over his 15-month tenure was damaging the agency. Pitt said he would stay until a replacement was named.

Though an acclaimed securities lawyer, Pitt, 57, was continually criticized for arrogance and for antagonizing many of the people whom he needed to support his policies.

Names of several possible successors have been discussed in Washington and Wall Street circles in recent days. They include Rudolph W. Giuliani, a former New York mayor who prosecuted white-collar criminals in the 1980s as a U.S. attorney; Frank G. Zarb, a onetime head of the National Assn. of Securities Dealers; and James R. Doty, a Washington lawyer who once served as SEC general counsel.

But Giuliani has taken himself out of consideration.

Until a permanent successor is in place, Bush may designate one of the agency’s two Republican commissioners, Paul Atkins or Cynthia Glassman, as acting chairman, experts said.

The other two commissioners, besides Pitt, are Democrats Roel Campos and Harvey Goldschmid.

Officials at the White House said Wednesday that it was too early to determine how soon the president would nominate a permanent replacement for Pitt.

One Bush aide, speaking on the condition of anonymity, said he had seen no signs of movement, but that it was an issue on which Bush and his top advisors wanted to proceed quickly.

White House Press Secretary Ari Fleischer said a replacement would be nominated “as soon as the transition allows.”

But he said “I can’t guess” whether the task will be completed within weeks or months.

“I don’t know that anybody has a firm handle on how long that could be,” he said, indicating that the White House intended to hold firmly to its practice of not adding to speculation about personnel moves.

After a candidate is chosen, it could take at least two weeks for the FBI to do a background check. The nominee then would have to be confirmed by the Senate, though that task became easier with Tuesday’s elections, as the GOP regained control of the chamber.

Complicating the process, some experts said, is the question of whether many of the top candidates would want the job.

A new chairman could establish a powerful legacy at what is widely viewed as a historic turning point in markets and in corporate governance, in the wake of this year’s accounting scandals and the SEC’s current campaign to force fundamental reforms on Wall Street.

But Pitt suffered through intense media scrutiny, and the glare may be even greater for his successor, at least at the outset.

That spotlight may have dissuaded others from taking the job in the past. Before Pitt was named 15 months ago, several other candidates reportedly rejected the position.

“It wasn’t easy for them to find someone for the job when they got Harvey,” said Jonathan Macey, a securities law professor at Cornell University.

Meanwhile, Pitt’s resignation has increased pressure on Webster, 78, to step down from the accounting oversight board.

Webster was Pitt’s choice to run the panel, which was created by Congress in July to oversee the accounting industry and restore investor trust in corporate financial data. But the process by which Webster was picked ultimately cost Pitt his job.

Webster said he informed Pitt before the SEC’s Oct. 25 vote on accounting board members that he had headed the audit committee of a company, U.S. Technologies Inc., that had been sued by shareholders for fraud.

The audit committee also dismissed the firm’s outside accountants one month after the auditors questioned the company’s financial controls.

Pitt did not reveal those facts to other commissioners before the vote, sparking an outcry when they came to light.

Webster this week said he would consider quitting if his presence became an impediment to the board’s work. Many observers expect him to resign soon. He could not be reached for comment Wednesday.

Many SEC observers predict that Robert Herdman, the agency’s chief accountant, also will resign. At Pitt’s request, Herdman handled the vetting of Webster before the SEC’s vote.

Pitt’s resignation and the uncertainty surrounding Webster have hurt SEC morale and slowed major policy initiatives, experts said. But the oversight panel may be suffering the greater setback at the moment.

The panel, which must rely on the SEC to help coordinate its start, lacks such necessities as office space, staff and funding. By law it must be functional by late April, but it has yet to hold its first meeting.

Staff writer James Gerstenzang in Washington contributed to this report.