Pitt Wants Probe of Accounting Board Selection Process

October 31, 2002 (PLANSPONSOR.com) - Faced with fresh accusations being leveled at the newly appointed federal accounting board chairman he backed, US Securities and Exchange Commission (SEC) Chairman Harvey Pitt now wants a review of the selection process.

According to news reports, Pitt made the review request to SEC Inspector General Walter Stachnik after a New York Times article reported that accounting board chairman William Webster headed the audit committee of a company facing financial fraud charges.

The Times article reported that Pitt knew Webster headed the audit committee of US Technologies Inc., but didn’t report it to his SEC colleagues or the White House.

The small publicly traded company is now all but insolvent and it and its chief executive, C. Gregory Earls, are facing suits by investors who say they were defrauded of millions of dollars, the Times said.

The suits contend the misconduct occurred in late 2001 and this year. That was after the three-person audit committee, headed by Webster, had voted to dismiss the outside auditors in the summer of 2001 after those auditors raised concerns about internal financial controls, according to the Times.

“I told them that people are making accusations,” Webster told the Times of his conversation with Pitt before he was appointed last Friday. “I said if this is a problem, then maybe we shouldn’t go forward. I raised it because I didn’t want it to become an issue.”

The Times said federal investigators are looking into the company, but that Webster is not a criminal target.

The accounting oversight board is the centerpiece of legislation approved this summer in response to the wave of scandals at Enron, Arthur Andersen, and WorldCom.

In a sometimes emotional meeting Friday, the SEC approved Webster, former FBI and CIA director to head the accounting oversight board in a partisan 3-to-2 vote. (See  SEC Names Webster Accounting Board Chairman ).

Pitt and other Republicans praised Webster while the SEC’s Democrats favored former TIAA-CREF Chairman John Biggs. Democrats complained that Webster’s background hadn’t been fully investigated, according to the Times.

Webster stepped down from the US Technologies board in July after he said he was told that it could no longer provide liability insurance for directors and officers against claims from investors.