A Rising Voice for Investors at SEC
On the morning of a critical Securities and Exchange Commission vote late last month, Commissioner Harvey Goldschmid got a phone call from David Ruder, who had run the agency in the late 1980s.
The commission was bitterly split on a plan to name William H. Webster as the chairman of the nation’s new accounting oversight board, and Ruder implored Goldschmid not to oppose the candidate publicly nor to voice grievances about the behind-the-scenes selection process.
Goldschmid politely refused, Ruder said. And in a passionate speech at the meeting, Goldschmid criticized Webster’s selection and indicated that SEC Chairman Harvey L. Pitt had abruptly withdrawn support for a competing candidate who was expected to take a much tougher approach to accounting reform.
“I knew this was a step some people would object to, and only a compelling circumstance of this type would force me to come forward,” Goldschmid said in an interview. “I consider it one of the least favorable days of my life, though I didn’t have a second of reservation. In my view, I did the right thing.”
With that speech, both supporters and detractors say, Goldschmid let it be known that he intended to play a forceful role at the SEC, the chief U.S. financial regulator.
And with Pitt’s resignation from the SEC on Nov. 5, Goldschmid’s stature was further enhanced among those who believed Pitt was following an agenda that undermined the agency’s image.
Goldschmid, 62, is a Columbia University law professor and a former SEC general counsel. President Bush appointed him in April as one of two Democrats on the five-member commission, and the Senate confirmed him in July.
As a top aide to former SEC Chairman Arthur Levitt in the late 1990s, Goldschmid helped craft a host of pro-investor initiatives. Supporters say he’ll be a powerful voice for investor interests at the SEC.
“Investors are extremely lucky to have him at the commission at this point in time,” said Nancy Smith, director of RestoreTheTrust.com, an advocacy group for shareholders.
*
Pivotal Player
As SEC general counsel in 1998 and 1999, Goldschmid was a driving force behind several of Levitt’s reform measures, including an attempt to limit accountants from doing consulting work for companies they’re auditing -- a proposal the accounting industry beat back.
Goldschmid also wrote Regulation FD, which prohibits companies from giving key information to favored investors without also releasing it to the general public.
And he has been a vocal opponent of a 1995 law intended to limit lawsuits by aggrieved investors against companies. As SEC general counsel, he argued two federal appellate court cases to ensure that investors still could bring suits on charges of recklessness in addition to intentional fraud.
But Goldschmid’s burgeoning profile is stirring anxiety among political opponents who worry that he will press an activist agenda even to the point of fomenting dissension at the normally collegial SEC if he doesn’t get his way.
“He’s very ambitious,” said Laura Unger, a former Republican commissioner. “I get the feeling he is someone who thinks ‘Regulation at any cost.’ ”
Goldschmid dismisses such concerns. “Individual commissioners can’t have agendas, and I don’t think of myself as aggressive,” he said.
What is certain is that Goldschmid will be a pivotal player in shaping the SEC and the financial markets at a time when both are at a crossroads.
Among the key decisions he and his colleagues will make is the choice of a replacement for Webster, who resigned last week following controversy over his work as a director for a small company that has been sued by shareholders alleging fraud.
The commission also will face major decisions in implementing the landmark corporate and accounting reform law signed by Bush in the summer. The law gives the SEC wide latitude in translating Congress’ intent, and Goldschmid is expected to press for a tough interpretation of the new regulations.
The commission also must sign off on a myriad of enforcement cases against alleged corporate wrongdoers. Those cases include a proposed settlement with Wall Street brokerages over alleged tainted advice by their stock analysts during the bull market.
Beyond any legal settlements with brokerages, Goldschmid suggested that he is likely to press for hard-hitting industrywide rules governing analysts’ conduct.
“The basic goal would be to increase the honesty, accuracy and credibility of analysts,” he said, though he declined to be more specific about his plans.
On some issues, Goldschmid may be unable to cast a vote: While at Columbia, he also worked as a part-time attorney at Weil, Gotshal & Manges, a New York law firm, where he did work for the National Assn. of Securities Dealers and the Nasdaq Stock Market as well as for Merrill Lynch & Co. and Lehman Bros. At the SEC, he has recused himself for one year on matters involving all of them, he said.
*
Pitt’s Counterweight
Goldschmid said he is motivated by the need to restore public faith in financial markets, which has been shaken by the pandemic of corporate misconduct, and the need to restore faith in the commission, whose image has been tarnished by the Webster furor, Pitt’s resignation and other controversies.
In person, Goldschmid is soft-spoken and low-key. Born in a rough-and-tumble section of the Bronx, the lifelong New Yorker is a married father with three sons, two of whom have followed his path by enrolling at Columbia law school.
Though well-known in legal circles, Goldschmid has only come into wide public view since he was named an SEC commissioner, where he immediately was seen by some as a counterweight to the Republican Pitt.
Observers often framed issues in terms of the positions staked out by the “two Harveys.”
Throughout his 15-month tenure, Pitt -- who in private law practice in the 1980s and ‘90s served a long list of Wall Street clients -- was dogged by criticism that he favored the accounting and securities industries over investors. Pitt forcefully rejected those allegations.
Despite their philosophical differences, Pitt and Goldschmid had not publicly clashed until the fight over Webster’s appointment.
According to Goldschmid and others, Pitt initially pledged to support John Biggs, a New York pension fund executive. Then suddenly he changed course.
Critics said Pitt’s reversal came after the accounting industry and congressional Republicans grew worried that Biggs would push for strong reforms. Pitt has disputed that claim, saying Biggs never was offered the chairmanship.
When the divide on the issue became clear, Goldschmid asked that the SEC’s vote on the accounting board’s members be held in a public meeting rather than in the private session that was planned. It was an unusual step, because the commission has historically sought to prevent internal disputes from flaring into the open.
“This was the most important thing we would be doing,” Goldschmid said. “We just couldn’t have a vote of this magnitude and do it in the shadows.”
A week after the partisan 3-2 vote approving Webster -- with Pitt joined by fellow Republican commissioners Paul Atkins and Cynthia Glassman and Goldschmid joined by fellow Democrat Roel Campos -- damaging information surfaced. It was revealed that in 2001, Webster had served as head of the board audit committee at U.S. Technologies Inc., which had fired its accounting firm shortly after questions were raised about the company’s internal financial controls.
Webster said he had told Pitt about the controversies involving the company, according to published reports. But Pitt did not inform Goldschmid nor the other SEC commissioners before the vote on Webster.
The revelations sparked public outrage, resulting first in Pitt’s resignation, then Webster’s.
Goldschmid declined to comment further on either man. At the Oct. 25 meeting, even as he argued against Webster’s nomination, Goldschmid praised the former federal judge’s integrity. But he said Biggs’ financial background made him a superior choice.
*
Temperament Question
Goldschmid’s future effectiveness at the SEC may rest on two factors, many observers believe: the influence he can muster among the three other current commissioners and the regulatory philosophy of whomever Bush chooses to replace Pitt as chairman.
“If you bring in an ideologue on the other side of table, I don’t see Goldschmid as anything other than one of two voices on the losing side,” said Lynn Turner, a Goldschmid ally and former SEC chief accountant.
Critics worry how Goldschmid would react if that happens.
“I fret that his actions at the meeting at which he so vocally disagreed with Chairman Pitt indicate that he has a personality that would not accept defeat easily,” said Ruder, who now is a law professor at Northwestern University. “If he wants to publicly disagree, he should be articulate and reasoned, rather than blowing it up into a big issue. I don’t know whether he will or not.”
Goldschmid rejects those concerns. He stressed that he likes the other commissioners and that he expects they will make decisions jointly.
He spoke up about Webster’s selection because there was a “critical principle” involved, Goldschmid said.
“That’s why you come to Washington, and what the public would expect of you,” he said.
*
(BEGIN TEXT OF INFOBOX)
Harvey Goldschmid
Age: 62
Born: Bronx, N.Y.
Family: Wife, Mary, and three children -- two sons at Columbia University School of Law and a son in high school.
Education: Columbia College, B.A., magna cum laude, 1962; Columbia University School of Law, J.D., magna cum laude, 1965.
Career: On leave from Columbia University School of Law, where he has been a professor since 1970; “of counsel,” part-time attorney at Weil, Gotshal & Manges from 2000 to this year.
SEC salary: $130,000.
SEC term expires: June 2004
