Nine months into his job as Securities & Exchange Commission chairman, Harvey L. Pitt has yet to allay suspicions that he is too chummy with the big accounting and brokerage firms he used to represent. A series of political gaffes have given ammo to consumer groups and Democrats who think Pitt has responded tepidly to the corporate crime wave revealed since the Enron scandal broke. Pressure for Pitt to resign is building on the Right, too, with the famously conservative Wall Street Journal editorial page questioning the SEC chief's credibility.
Pitt's pickle is this: Many liberals want him to be replaced by a less pro-business chairman. And conservatives fear that he'll feel obliged to prove he's no patsy of Wall Street by shackling the markets with onerous oversight and new regulations. "One's expectations going in were that he was a person who wouldn't do much harm," says Fred L. Smith Jr., president of the Competitive Enterprise Institute. "Now, given the bloodlust of Congress, there's a tendency for him to do more harm."
The latest flashpoint is Pitt's Apr. 26 meeting with Eugene D. O'Kelly, chairman of KPMG, a former client. O'Kelly later suggested that an SEC investigation of KPMG's audits of Xerox had been discussed. Pitt insists the topic never came up. KPMG still maintains that it did but conceded on May 14 that Xerox was never mentioned by name. The White House says the matter is settled. "Pitt got his story straight, and [KPMG's clarification] backs him up," says Lawrence B. Lindsey, Bush's chief economic adviser. Some Dems aren't satisfied. "We still haven't gotten to the bottom of this, and I don't like the smell of it," says Representative Edward J. Markey (D-Mass.).
Pitt insists he has done nothing wrong. "I don't view any meeting I've had as inappropriate," he says. Still, he promises to redouble efforts to screen visitors and squelch the slightest appearance of improper contacts with former clients.
But can he? Even close associates concede that Pitt has a political tin ear. "He needs more appreciation for the political complications of these issues," laments a friend. That's not something his press and congressional liaisons had to worry about much in their prior jobs as staffers for the blunt-speaking Senator Phil Gramm (R-Tex.). But it's a blind spot reinforced by Pitt's style. "He's impatient, and he doesn't solicit views from people around him," says one SEC insider.
As an operator, Pitt is the mirror image of his predecessor, Arthur Levitt Jr. On issues such as auditor independence and financial disclosure, Levitt staked out strong public positions, pushed for radical rules--and often settled for much less. Pitt sets modest reform goals and digs in--or ends up getting dragged further along. His plan for regulating auditors falls short of offering the discipline the industry requires. And when investors scoffed at new SEC rules forcing analysts to limit contacts with their investment-bank colleagues, Pitt conceded that tougher standards might be needed.
But behind the scenes, Pitt has been more the attack dog in policing actions against investment fraud. His enforcement division has racked up a long list of restraining orders, asset freezes, and fines, including a record $10 million penalty against Xerox. "The irony is, on enforcement, [Pitt] is more hard-nosed than Arthur ever was, " says an SEC staffer who worked with both chairmen.
Pitt's job seems secure--for now. And his confidence certainly is not shaken. He insists he'll be remembered as "someone who elevated the interests of the American investing public in extraordinarily difficult times. That's my goal--and I'm not used to failure." But one more round of political Pitt-falls could change that track record. A coalition of Christian conservatives is taking aim at one of the world's most prominent conservative voices--media mogul Rupert Murdoch. What has them steamed is what they see as lewd and immoral programming on Murdoch's Fox Network (FOX). The 15-group coalition, which includes Focus on the Family and Concerned Women for America, has won a May 23 audience with Federal Communications Commission Chairman Michael K. Powell. Stay tuned. Tinseltown's liberal-leaning glitterati, who overwhelmingly supported Al Gore in 2000, are more kindly disposed toward President Bush these days. One reason: He has avoided the convenient Hollywood-bashing of New Democrats such as Bill Clinton and Connecticut Senator Joseph I. Lieberman. "The last Administration was attacking us all the time," says Jack Valenti, president of the Motion Picture Association of America. "This Administration has not attacked us." Congressional Budget Office director Dan L. Crippen will not seek reappointment when his term expires at yearend. Crippen, a former Reagan aide, has come under intense criticism from House Republicans in recent months. While the CBO job is supposed to be nonpartisan, GOP leaders want his successor to be more supportive of party tax-cut initiatives. One candidate: David Malpass, chief international economist at Bear Stearns.