Webster resigns board in
turmoil
USA TODAY
11/13/2002
By Greg Farrell
William Webster resigned Tuesday as chairman of a new
accounting oversight board, less than three weeks after the
Securities and Exchange Commission tapped him for the job.
Webster's departure makes him the third official to resign
because of the uproar that followed his appointment. Last week,
SEC Chairman Harvey Pitt resigned after admitting that he
neglected to tell his fellow commissioners about Webster's
connection to an Internet entrepreneur accused of fraud. SEC
chief accountant Robert Herdman also resigned over the
matter.
Coming after a tide of disclosures about financial scandals
and executive misdeeds, the flap over the Public Company
Accounting Oversight Board could give investors more cause for
cynicism. As the board's four remaining members prepare for their
first meeting today, advocates for accounting reform are
wondering if the damage to the board's credibility is beyond
repair.
"I hope it's reparable," says Arthur Levitt, who was chairman of
the SEC until Pitt took over 15 months ago. "It depends on how
they reconstitute the board."
"No, it's not doing irreparable harm," says Nell Minow, a
shareholder rights advocate and editor of The Corporate Library.
"The White House and SEC could act really quickly to appoint
someone outstanding. What might do irreparable harm is if the
business community and elected officials take the election
returns as being their get-out-of-jail-free card from reform
efforts."
SEC spokeswoman Christi Harlan says the commission will "move
expeditiously to name a new chairman" for the board. It's not
clear whether the SEC will appoint one of the four current
members as interim chair or try to replace Webster directly with
a new candidate.
"The SEC must act with wisdom and independence in selecting a
chairman of the oversight board," said Sen. Paul Sarbanes, D-Md.,
co-author of the law that created the board. "This is imperative
in carrying forward the reforms contained in the recently enacted
investor protection legislation and in restoring investor
confidence in our financial markets."
The Sarbanes-Oxley corporate reform act, passed in July, gave
the SEC 90 days to select five board members. The commission
nearly blew that deadline last month when a dispute pitted three
Republican appointees who supported Webster against two
Democratic appointees who backed John Biggs, an activist pension
fund manager.
Although Biggs still has the support of two SEC commissioners
— Harvey Goldschmid and Roel Campos — he probably
won't get the nod, given the acrimony surrounding Webster's
appointment. Following the disclosure of Webster's involvement
with U.S. Technologies CEO Greg Earls, a man with a long trail of
fraud accusations in his past, Biggs called on SEC Chairman Pitt
to resign. Pitt resigned on election night but agreed to stay on
until a new chairman is ready to take over.
The new board has until April to launch its operations in
earnest. Absent the Webster affair, the board would still be
challenged by the Sarbanes-Oxley timetable. Now, with confusion
surrounding its leadership and direction, the board's workload is
even bigger. Here's what its members have to do:
- Hire staff. By April, the board should have scores of key
employees — from a general counsel and chief of staff to
legions of accountants and lawyers — on the payroll. The
board's budget is expected to be more than $25 million a
year.
"You're going to need at least 100 people. You're setting up a
real operation in the next few months," says Charles Bowsher, who
headed the Public Oversight Board, an accounting-industry body
that was disbanded this year and will be replaced by the
SEC-appointed panel.
- Find office space. That isn't simple, because it may make
more sense for the board to be headquartered in New York —
where most of the big accounting firms are — than in
Washington, D.C. Board members may want offices in both
places.
- Get organized. Like the SEC, the board has a chairman and
four other board members. But because the SEC chairman controls
all of the agency's administrative levers, other SEC
commissioners are relatively powerless. The oversight board may
decide to assign administrative control to various members,
giving each an area of expertise and responsibility.
"I believe this board ought not to waste the talents of these
people," says David Ruder, professor of law at Northwestern
University and SEC chairman under President Reagan. "It should
ask them to supervise the administration of the organization with
the chairman having the final say. Otherwise, commissioners tend
to be wasted."
Ruder thinks the board's investigative and prosecutorial
functions should be handled by Charles Niemeier, the chief
accountant of the SEC's enforcement division. Dan Goelzer,
Ruder's former general counsel at the SEC, could be in charge of
setting rules and regulations, Ruder adds. Former congressman
Willis Gradison would be a natural to handle politically
sensitive duties, such as registering accounting firms. And Kayla
Gillan, former chief legal adviser at CalPERS, could supervise
inspections.
Webster's references
The resignation of Webster, the highly respected former
director of the FBI and CIA, is the coda to one of the most
bizarre chapters in SEC history.
Last August, when the SEC began looking for candidates to head
up the oversight board, commissioner Paul Atkins suggested
Webster or former New York mayor Rudy Giuliani. In September,
Webster's candidacy had no momentum. No one was sure the
78-year-old would even want the job. Instead, Pitt and
commissioner Goldschmid seemed settled on Biggs, head of the
pension investment fund TIAA-CREF, as the front runner.
The two discussed the job with Biggs on Sept. 11. Biggs was so
convinced that he was going to be asked to take the position that
he accelerated his retirement plans to be free to serve.
At some point during the month, things changed. Pitt spoke
with Rep. Michael Oxley, R-Ohio, the chairman of the House
financial services committee, who suggested Biggs might turn out
to be immoderately prone to activism in the job. In early
October, Pitt let it be known that Biggs was no longer the
favorite.
In mid-October Pitt and Herdman, his chief accountant, met
with Webster to gauge his interest in chairing the oversight
board. Although Webster was attracted by the prospect of aiding
beleaguered investors, he told Pitt that he had headed the audit
committee of a company called U.S. Technologies and that its CEO
had been accused of fraud.
Pitt told Webster that Herdman would look into the matter to
determine whether that information would affect his candidacy. It
is not known whether Herdman conducted any kind of background
search of the matter, since a quick scan of the SEC's own records
would show that the company's audit committee had fired U.S.
Technology's auditor, BDO Seidman, after the accounting firm said
the company's financial record keeping had material deficiencies.
Webster has said the auditor was dropped because it charged too
much and took too long to complete its work.
Before the commission's vote to select Webster, White House
chief of staff Andrew Card urged Webster to take the $500,000-a
year job. On Oct. 25, a commission split along party lines voted
3-2 to make Webster chairman. Dissenting Democratic appointees
Goldschmid and Campos praised him as a great public servant but
said he didn't have Biggs' understanding of the issues facing the
new board.
A week later, the New York Times disclosed Webster's history
with U.S. Technologies and Earls, forcing Pitt to admit to his
fellow commissioners that he hadn't told them everything prior to
the Oct. 25 vote. The revelation sparked four investigations into
the selection process and Webster's history at the company.
The disclosure also forced Pitt and Herdman to resign last
week. Webster said he'd serve on the new board until such time as
his involvement with Earls became an unnecessary distraction to
the board's work. After a weekend of reflection, Webster resigned
Tuesday afternoon.
Meanwhile Tuesday, new evidence emerged that Webster and other
U.S. Technologies board members were warned last March about
several civil fraud lawsuits involving Earls. New York attorney
Stanley Arkin says he sent Webster and other directors copies of
an action that accused an Earls-controlled firm of defrauding a
trust that invested nearly $4.5 million to buy U.S. Technologies
stock.
The case contained references to other lawsuits, including one
that spelled out a scenario in which Earls allegedly used
investments from an unrelated venture to buy a controlling
interest in U.S. Technologies.
On March 20, Earls sent board members a written reply that
called the charges "allegations, not proven facts" that he
"vigorously disputed."
Massachusetts businessman Arthur Maxwell said in an interview
Tuesday that he, Webster and others who were on the U.S.
Technologies board at the time repeatedly discussed the
allegations. Board members took no action, Maxwell said, "because
we had no way to be able to get any of the information to
determine whether the charges had merit."
Contributing: Kevin McCoy, Del Jones
|