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Cia director new sec chair { October 26 2002 }

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October 26, 2002
Divided S.E.C. Picks Watchdog for Accounting

ASHINGTON, Oct. 25 The new board overseeing the accounting profession got off to a troubled start today when the members of the Securities and Exchange Commission split bitterly over the qualifications and competency of the board's new leadership. They voted 3 to 2 to approve formally the selection of William H. Webster, the former director of the C.I.A. and the F.B.I., to head the new board.

The three Republicans on the commission and Republicans in Congress hailed Mr. Webster for his integrity and extensive background in law enforcement, but the commission's two Democrats said he lacked the credentials to lead an accounting board. They emphasized that he had no recent experience in accounting issues and lamented the perception that the Republicans had given in to the accounting profession, whose lobbyists had complained that an earlier choice of some of the commissioners, John H. Biggs, had been too aggressive a reformer.

The handling of the selection process left Harvey L. Pitt, the commission's chairman, further politically wounded after a year of missteps. The choice of Mr. Webster over Mr. Biggs was widely criticized by leading members of Wall Street and by Senator Paul S. Sarbanes, the Maryland Democrat who was the main author of the law creating the new board. Until today Mr. Sarbanes, the chairman of the Senate Banking Committee, had carefully refrained from joining his Democratic colleagues in seeking Mr. Pitt's ouster.

"He has eroded credibility and he has detracted rather than contributed to investor confidence," Mr. Sarbanes said in a telephone interview. "Chairman Pitt missed the opportunity to put in place an oversight board with widespread credibility. The country would be best served if he stepped down as chairman of the S.E.C."

But there was no sign that Mr. Pitt's most important constituency, the White House, had withdrawn its support. President Bush's chief of staff, Andrew H. Card Jr., personally pressed Mr. Webster this week to take the job. The selection was also widely endorsed by executives in the accounting profession and by one of their strongest allies in Congress, Representative Michael G. Oxley, Republican of Ohio.

Mr. Oxley, who opposed the selection of Mr. Biggs, prevailed on the commission to appoint Willis D. Gradison Jr., a former House colleague who has become a lobbyist for the health care and insurance industries, to the board. The commission did, approving a slate of members, including Mr. Gradison, by a vote of 4 to 1. The other members approved were Kayla J. Gillan, a former general counsel of the California Public Employees Retirement System; Daniel L. Goelzer, a former general counsel at the commission; and Charles D. Niemeier, chief accountant of the enforcement division at the S.E.C.

Mr. Pitt, who for weeks had vowed to seek a new oversight board that garnered unanimous support, endured withering criticism today from the two dissenting commissioners. They accused him at a public hearing of reneging on a pledge to support Mr. Biggs in the face of pressure from the accounting profession.

Mr. Pitt declined to address specifically the accusations that he had promised to endorse Mr. Biggs at a luncheon on Sept. 11 and then withdrew that support as industry objections were raised. He said that he never spoke to anyone in the accounting profession about the selection, and that if there was any lobbying campaign under way, it was to install Mr. Biggs.

"I know what took place at that meeting and it isn't worth getting into specifics," he said. "At some point, efforts were made to create false impressions."

"I am fiercely independent," he added. "I am beholden to no one. At no time has any member of the accounting industry, any member of any administration or any member of the Republican Party sought to influence my judgment. No one."

Some Republicans today praised Mr. Pitt and the commission's selection of Mr. Webster.

"The commission has achieved what was envisioned in the law, a balanced, independent and moderate board comprised of knowledgeable and experienced members," Mr. Oxley said.

The selection was also endorsed by some members of the accounting profession.

"It looks like we have an outstanding group of individuals that can lead the board and move the profession in the direction that it needs to go in," said Edward E. Nusbaum, chief executive of Grant Thornton, one of the largest accounting firms just below the Big Four. "I think they'll restore the public trust, which is critical."

But that view was disputed by some leading figures on Wall Street who had actively campaigned for Mr. Biggs.

"I have tears in my eyes," said John C. Bogle, founder and former chairman of the Vanguard Group, who supported Mr. Biggs. "I just don't see how this can give the markets any reassurance. It's just more of the same old political stuff."

Mr. Bogle said that investors were probably so cynical that they could not be disappointed further.

"That cynicism is just going to be reaffirmed by all this," he said. "It's just a spectacular blunder."

In an interview after the vote, Mr. Biggs, the chairman and chief executive of a large pension system, said he was assured by Mr. Pitt on Sept. 11 that Mr. Pitt would support him to head the new board.

"It was totally unambiguous," Mr. Biggs said. "He said he wanted to do it by Sept. 30." He said that after an article in The New York Times on Oct. 1 that reported that senior officials had offered the job to Mr. Biggs, he received a call from Mr. Pitt saying he was no longer certain he could offer his support for the job. "Pitt said the article had created consternation in Washington."

"The accountants were clearly concerned," Mr. Biggs said. "They thought it was a done deal."

Mr. Biggs said he also thought that Mr. Pitt and the S.E.C.'s chief accountant, Robert K. Herdman, were dissatisfied with his response to a question about whether the oversight board should delegate setting auditing standards to the profession.

Harvey J. Goldschmid, a Democratic commissioner who had supported Mr. Biggs, attended the Sept. 11 lunch with Mr. Biggs and Mr. Pitt and today gave the same description of it. In a strongly worded dissent, he lamented that the board had been created under such circumstances.

"It is a tragedy that the oversight board which had so much potential to restore investor trust will begin life under so dark and ugly a cloud," he said. Describing the commission's selection process as "flawed" and "inept," he said it had done great harm to the commission, as well.

"We owe an apology to the nation," he said. "I apologize to the nation. I deeply regret that the commission has not acted unanimously, or wisely, today."

Mr. Pitt began the proceeding by praising Mr. Webster highly. The two other Republicans on the commission, Paul S. Atkins and Cynthia A. Glassman, also praised Mr. Webster and said that their selection was based entirely on the merits and had nothing to do with their prior careers as top executives at major accounting firms.

But the Democrats said that Mr. Webster lacked the credentials for the job, particularly when compared with Mr. Biggs, who had testified in recent years about a variety of accounting issues.

"I cannot express strongly enough my respect for Judge Webster as a man and as a public servant, but it does not seem to me that his experience is relevant to the important job at hand," said Roel C. Campos, the second dissenting commissioner. "It is not right that the oversight board should be born with the scar of its members having been subjected to the approval of the accounting lobby."

Mr. Goldschmid agreed.

"No one can or should challenge Bill's integrity or dedication to public service," Mr. Goldschmid said of Mr. Webster. "But this is not the right job for Bill, at least when a candidate with the qualifications and expertise of John Biggs is available and willing to serve. Bill has not been involved in the accounting issues the oversight board faces. He has no real accounting expertise."

But Mr. Webster said his lack of accounting expertise would not hinder the work of the board.

"Certainly it's a fact," he said on "Moneyline" on CNN.

"I think I know enough to know when I need to know more," he said. "And I'll get the information. We have a board that has two brilliantly experienced certified public accountants who are also lawyers, and I think as a function of the board, we are going to do just fine."

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