US Securities and Exchange Commission Chairman Harvey Pitt, who promised a "kinder and gentler" agency, is developing an increasingly tough regulatory agenda as fallout from Enron Corp's bankruptcy spreads, many investors and former regulators say.
Pitt, who yesterday said the SEC would investigate conflicts of interest by Wall Strchairman of the eet stock analysts, responded to the energy giant's collapse by proposing rules aimed at accounting fraud. The SEC also more than doubled its inquiries into accounting irregularities at companies.
Those actions, taken amid criminal investigations and Congressional calls for reform, reveal a different SEC from the vision Pitt articulated after taking office in August, many investors say.
"To look at Pitt in 2001 was probably to assume he was not going to be a reformer," said Peter Clapman, chief counsel for corporate governance at TIAA-CREF, the biggest teachers pension fund in the US "Enron forced an agenda of corporate responsibility on the chairman." Some say Pitt, who spent two decades as a private lawyer for accounting and securities firms, still hasn't gone far enough.
They cite, for example, his opposition to banning accounting firms from earning consulting fees from companies they audit.
"He is not the kind of chairman of the SEC that recognizes the critical import of the SEC's responsibility to society for the highest standards of corporate governance," said Abraham Briloff, emeritus professor of accounting at Baruch College in Manhattan who has testified before Congress on accounting issues. "His proposals have been reactive, instead of proactive."
Pitt has proposed creating a new oversight body for accountants, requiring shareholder approval for executive stock options, empowering audit committees to hire and fire auditors, and mandating that companies report insider stock sales within two days. He has also called for the immediate reporting of many events, such as the loss of an important customer and waivers of corporate ethics rules, and for speeding changes in accounting standards.
As questions about corporate accounting proliferated after Enron's bankruptcy, the SEC began probes at companies including Global Crossing Ltd, Qwest Communications International Inc and WorldCom Inc., boosting the number to 49 in the first two months of the year. On April 11, the commission fined Xerox Corp a record US$10 million for inflating revenue by US$3 billion over four years. The company didn't admit or deny wrongdoing. Yesterday, Dynegy Inc said the SEC is examining its books.
The SEC's investigation of analysts will probe whether their firms committed fraud by recommending to the public stocks that they didn't believe in to attract or retain companies as investment banking clients. Pitt ordered the investigation after New York State Attorney General Eliot Spitzer targeted brokerage houses in his own investigation and discovered e-mails in which Merrill Lynch & Co analysts disparaged stocks they were touting to the public.
Pitt "has a very broad agenda because of Enron and the accounting issues coming out of Enron," said Ira Sorkin, former head of the SEC's New York office and now an attorney at Carter Ledyard & Milburn. "It's also because he has to deal with a Congress that wants to be reelected."
In an appearance on public television's Charlie Rose program yesterday, Pitt said Enron's bankruptcy brought pressure for reform. "Enron has sort of become a poster child for change and it's accelerated our timetable," said Pitt, who declined to be interviewed for this article.
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