Harvey Pitt, under pressure from Republicans and his former clients in the accounting profession, is backing away from the choice he and other members of the Securities and Exchange Commission favored to lead the new federal agency that will oversee the industry.
Industry executives and at least one prominent Republican lawmaker complained that John H. Biggs, the top choice, was too tough on the industry. Following those complaints, Pitt, the chairman of the commission, informed Biggs this week in a telephone conversation that he was no longer certain he could support his candidacy to head the new accounting oversight board, according to several people who were briefed about the discussion. Only three weeks ago, Pitt privately assured Biggs that he would support him for the job.
Biggs, a top executive at a large pension system, has been a leading voice for more stringent oversight of the accounting profession. His testimony this year helped to lay the groundwork for some of the provisions in the legislation signed into law two months ago that set up the new five-member accounting oversight board.
PHOTO: NY TIMES
He has been endorsed by figures like Paul A. Volcker, a former Federal Reserve chairman who was the commission's first choice for the post, and Arthur Levitt, Pitt's predecessor. Biggs, the chairman and chief executive of the pension fund TIAA-CREF, testified this year before Congress that companies need to more stringently account for stock options granted to executives. He supports making companies rotate their auditors every few years. And he has been critical of accounting firms that perform consulting and auditing activities for the same clients.
The call from Pitt this week was a remarkable turnabout. At a lunch at TIAA-CREF offices in New York on Sept. 11, Pitt and Harvey J. Goldschmid, another commissioner, told Biggs that they would support him for the job if he wanted it, senior agency officials and congressional aides briefed about the meeting said. At that time, Biggs indicated he was leaning toward taking it.
Biggs then began consulting with the commissioners about who should be selected as the other four members of the new board. A few days after the lunch, Pitt publicly predicted that the new oversight board would be announced by the end of September, a month ahead of its deadline.
What tangled webs we weave
But now, commission officials say, the selection process has been thrown into turmoil, as the accounting profession, which lost the battle in Congress two months ago over how it should be regulated, has turned to Pitt, one of its former top lawyers before he joined the government, to try to win the war.
In response to an e-mail message outlining what aides and officials had said about the selection process, Pitt issued a one-sentence statement on Thursday through his spokeswoman, Christi Harlan. "The version of events you have described is untrue," his response said. Pitt declined a request to elaborate.
The SEC chairman now finds himself in an awkward political position, caught between some Republicans and the accounting profession, who do not want Biggs, and some of his colleagues and lawmakers, who do.
Congressional aides and current and former commission officials say the episode illustrates the continued political clout of the accounting profession despite its defeat on Capitol Hill on the legislation, sponsored by Senator Paul Sarbanes, establishing the oversight board.
"It appears that the accounting firms, the Republicans and now Chairman Pitt are trying to circumvent the Sarbanes legislation by making certain that the board does not include any reform-minded persons," said Lynn E. Turner, a former chief accountant at the commission during the 1990s who has been advising officials about implementing the new law. "If we lose Biggs, we lose a reform-minded board."
Biggs, who was described on Thursday by friends as still willing to serve, said through a spokesman that the commission had not offered him the job and declined to comment further. Despite the conversation with Pitt, his candidacy is not dead; Biggs continues to enjoy widespread support among the other commissioners and a number of lawmakers.
Goldschmid declined to comment about the selection process. Other officials said it was not clear whether Pitt's new stance was an effort to placate the accounting profession and its supporters in Congress or was simply a negotiating strategy to win the appointment of some candidates he prefers for the board who are opposed by other commissioners. As one example, officials say that Pitt strongly favors Donald J. Kirk, a Columbia Business School professor, for one board seat, while other commissioners think Kirk is too sympathetic to the industry.
The new oversight board is viewed as an important instrument to calm the roiled stock markets and restore credibility to the oversight of a profession that has lost one of its major firms, Arthur Andersen, due to its criminal involvement in the Enron scandal, and which is still faced with a steady stream of accusations involving conflicts of interest. With Biggs winning support for the job from top officials, the new board looked as if it would be off to a strong start.
But representatives from the accounting industry and its main lobbying organization, the American Institute of Certified Public Accountants, privately balked. They complained about the appointment to SEC and administration officials and Republican lawmakers, including Rep. Michael Oxley, the chairman of the House committee that has oversight responsibilities for the agency.
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