For months, nothing Pitt did seemed to faze any of the President's men. Tell the accounting industry, on the eve of revelations about Enron's botched bookkeeping, that he would make the SEC "kinder and gentler" to them? Yawn. Meet with those same accountants to map out an oversight board that seemed deliberately designed to be weak? What's the fuss? Confer in private, time after time, with top executives from companies that his own Enforcement Division was investigating? The White House stood firmly behind Mr. Pitt.
With his latest blunder, however, Pitt has committed the unforgivable act: He has blindsided the White House itself. The SEC chief withheld red-flag information about William Webster, his candidate to head the new accounting-oversight board, not just from his fellow SEC commissioners, but also apparently from White House Chief of Staff Andrew Card.
KEEPING MUM. On Oct. 15, Webster told Pitt that he had chaired the audit committee for U.S. Technologies, a Washington-based investment company that ran afoul of regulators and its outside auditors. U.S. Technologies fired its audit firm, BDO Seidman, when Seidman raised questions about the company's weak financial personnel and lack of strong internal financial controls. The company's stock has been delisted from exchange trading, and shareholders and federal prosecutors are pursuing allegations of fraud.
Pitt didn't tell the White House about this blotch on Webster's record. Two days before the Oct. 25 vote to name the accounting board, Card let his aides leak the news that he personally had urged Webster to take the job -- part of a concerted GOP campaign to defeat reform-minded pension-fund executive John Biggs.
Why wasn't Card alerted? Pitt loyalists say he had asked his staff to check out Webster's service at U.S. Technologies and concluded that the former federal judge, FBI director, and CIA chief hadn't erred. That's possible. "It may be just that Webster was passive when he should have been more forceful" in investigating the auditors' complaints, says a top SEC official.
Even so, Webster's involvement was bound to raise questions about his qualifications for a board that's supposed to push auditors to come down hard on companies that play accounting games.
BUNGLED JOB. Pitt, however, has already proven -- repeatedly -- that he can't tell what will pass the smell test in Washington. Someone with better political antennae should have warned the SEC chief. But SEC insiders say Pitt isn't good at taking advice, either. And Pitt would have been loath to do anything that undercut Webster: Without the judge, Pitt had little chance of preventing Biggs -- the favorite of Democrats like Senate Banking Committee Chairman Paul Sarbanes, SEC Commissioner Harvey Goldschmid, and, most significantly, former SEC Chairman Arthur Levitt Jr. -- from heading the accounting board.
With his previous bungles, Pitt had already alienated the SEC staff. Wall Street increasingly fears turmoil at the SEC will create more openings for Democrats on Capitol Hill to push tougher regulations. The White House and congressional Republicans counted on Pitt's tough-cop credibility to head off efforts to pass corporate-reform legislation -- a vain hope, as it turned out, when the WorldCom accounting scandal created a tidal wave of support for the Sarbanes-Oxley reform act.
So Pitt's continued tenure depends heavily on President Bush's famous loyalty to his appointees. But Bush turns quickly when he feels his loyalty hasn't been reciprocated -- or that underlings haven't been fully honest with him. Case in point: Linda Chavez's candidacy for Labor Secretary wasn't sunk by her tax problems with her nanny, but by her failure to disclose those matters to the Administration's vetters.
Now, thanks to Pitt's go-it-alone approach, Bush's top aide has egg on his face. And the capital is counting down the days until Pitt is gone. McNamee covers the SEC for BusinessWeek in Washington