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The scapegoating of Harvey Pitt

It was the job nobody wanted.

It was the job nobody wanted.

First, President Bush asked family attorney James Doty, who politely declined. Then, he turned to John Mack, now CEO of Credit Suisse First Boston, former Pfizer CEO William Steere and UBS PaineWebber chairman Donald Marron. All said, "Thanks, but no thanks."

Fortunately for the president, one man did want to be chairman of the Securities and Exchange Commission. Indeed, Harvey Pitt had pined for the job for most of his adult life. When he finally got the call last summer, he jumped at the chance.

"It was really a dream come true," says Pitt, who joined the SEC straight out of law school in 1968 and became its youngest general counsel before making his mark as one of the nation's top securities lawyers during nearly a quarter century in private practice.

In less than a year, the dream has become a nightmare -- for Pitt, for the administration that appointed him and, to hear his many critics, for a country whose confidence has been shaken by the cascade of news reports about corporate scandals. Held up as a poster child for conflicts of interest, as a tepid, even unwilling reformer, the SEC chairman has been lampooned by cartoonists, ridiculed by editorialists and denounced by politicians. Congressmen on both sides of the aisle are calling for his resignation -- or ouster -- forcing the president to spend precious political capital defending the man who should be his frontline fighter on corporate crime and in restoring investor confidence in a tarnished system.

How much of the criticism of Pitt is warranted, and how much is simply grotesque caricature? How much of the assault on is Pitt pure politics -- Democrats looking to tar Bush with Clinton-era corporate scandals as the November congressional elections approach? And does any of it, ultimately, have anything to do with whether Pitt can be a truly effective SEC chairman?

"The beauty of the commission is that for 68 years it's been an independent regulatory agency, with a strong, independent staff," says Theodore Levine, chief legal officer at UBS PaineWebber and a pal of Pitt's since their days as SEC colleagues in the mid-1970s. "Now, for the first time that I can remember, it has become politicized. It's being pulled in all kinds of different directions by both the Congress and the executive branch. That's something that I don't think any of Harvey's predecessors have had to deal with."

Pitt's term began in tragedy and has drifted, in the public eye, toward farce. Just five days after he was sworn in, terrorists struck the Pentagon and the World Trade Center, shutting down the nation's securities markets and destroying the SEC's New York regional office. By all accounts, Pitt, who hopped an Amtrak train to New York and orchestrated the reopening of the markets, acquitted himself well, winning accolades all around.

Since then, faced with free-falling stock prices and mushrooming scandals, Pitt has seemingly been all thumbs, bumbling from one highly publicized miscue to another. In a widely reported speech in October, he pledged "kinder and gentler" treatment for accountants, whom his predecessor, Arthur Levitt Jr., tried to more closely regulate. As the boardroom crime wave deepened over the winter, Pitt crafted a toothless plan for an industry-dominated body to oversee corporate auditors. That plan prompted the existing Public Oversight Board to disband in protest. He let New York State Attorney General Eliot Spitzer steal a march on the SEC -- and the Bush administration -- in appearing to crack down on the conflicts of interest of Wall Street's research analysts. And last month, as criticism of his performance mounted, he asked Congress to elevate his job to cabinet-level status -- which would mean a hefty pay raise as well. He did not clear the request with the White House first.

Pitt's years as a leading lawyer give him real and extensive ties to investment banks and accounting firms: During the past year he has had to recuse himself from 32 commission votes. In a huge embarrassment a judge on July 2 overturned an SEC decision to investigate accounting firm Ernst & Young because Pitt and commissioner Cynthia Glassman, a former Ernst partner, abstained from the vote approving it, leaving the commission without a quorum (see box, page 46).

As the political climate changed around him, Pitt has shown an insensitivity to the appearance of conflicts. While the investing public hungered for swift, visible action to restore confidence, Pitt granted private meetings to executives whose companies, including Xerox Corp. and KPMG International, were under SEC investigation -- a clear-cut no-no for any chairman.

"I think it was a mistake to appoint him," says Representative Barney Frank, who after the November elections will become the senior Democrat on the House Financial Services Committee. "He's a very smart man and a very honest one. But this is just not the time to send in somebody who has been the leading advocate of preserving the status quo for the accounting industry. He should step down."

Frank is just one of many Democrats, including Senate Majority Leader Thomas Daschle and House Minority Leader Richard Gephardt, calling for Pitt's head as midterm elections grow close and corporate greed becomes a major campaign issue. Republicans Senator John McCain and Representative Christopher Shays have also joined the chorus. "Simply put, fine man though he may be, the circumstances today require a new leader of the SEC," McCain said in a speech last month at the National Press Club. Pitt's public relations and political gaffes have undermined his credibility with even his ideological brethren. Says one veteran Republican activist, "I think he's missing a gene."

Pitt has his supporters. The White House is standing by him, and he can rely on the backing of others like Senator Charles Schumer, a New York Democrat with a seat on the influential Senate Banking Committee. "Harvey Pitt knows this stuff," says Schumer. "I think he's now got religion, and if he has religion, there will be no one better at going after these guys, because he knows how the game is played."

Pitt has been stunned and deeply wounded by the attacks on him, say confidants. "If you pick up the daily paper or turn on the Today show these days, you come away thinking Harvey's a crook," says one friend. "Obviously, that's not the case, but unfortunately, the perception is all that matters, and he hates it. He resents it."

Pitt sees himself as a victim both of political expediency and, as he told Institutional Investor, "my own naiveté about how other people view this job." He argues that he has responded quickly and forcefully to the crisis but that he is being scapegoated by partisan politicians. "I view it as a substantive job," he says of the chairmanship. "But it is clear to me that many people, including many reporters, view it as a political job. One of the things that wasn't clear to me is that it's not just important to get the right answers or good answers, it's also important to make sure that people have confidence that those are good answers."

It's a tad strange for a Washington lawyer and SEC veteran to be just figuring this out now, but Pitt is right. His job is intensely political. No one knows that better than predecessor Levitt, a liberal Democrat and the longest-serving SEC chairman ever. "You really have to have some finely tuned political antennae to survive," says Levitt, who thinks Pitt, an ideological opponent, is getting something of a bum rap. "Harvey has made some serious mistakes with respect to the media and the politicians, and he's got to undo that. But I do think he's being unfairly criticized for a number of things. He's better than he's getting credit for."

Indeed, Pitt's biggest problem is his inability to get the message out that he's doing the right things to clean up corporate America and restore confidence. The good things that Pitt has done in his year -- and it is a surprisingly long list -- have been buried beneath the avalanche of negative coverage of his doings. The bad press has seriously hurt agency morale. His penchant for behind-the-scenes maneuvering, effective in many cases, has meant that others, from New York Stock Exchange chairman Richard Grasso, on the subject of corporate governance, to Louisiana Representative Richard Baker, on toughened research analyst guidelines, have gotten credit for Pitt's initiatives.

Unfair as it is, Pitt's physical appearance plays a role in shaping his public persona. Portly, bearded and clad in the time-honored power uniform of pinstriped suits and suspenders, the frequently long-winded Pitt comes off as an untelegenic fat cat -- a sharp contrast to the sleek, patrician Levitt, during whose eight-year tenure many of today's accounting abuses arguably originated.

"I think it's fair to say that, appearancewise, he's not as outwardly charismatic as people want someone in his position to be at a time like this," admits one longtime friend. "Harvey's definitely not made for prime time, unless you're talking about C-SPAN or National Public Radio."


Back in 1968, in the regional finals of the national moot court competition in lower Manhattan, Pitt masterfully argued a case in which aggrieved investors sued an accounting firm that had blessed the financial statements of a company that turned out to be cooking its books. Leading the team from blue-collar St. John's University Law School, which was charged with defending the accounting firm, the 23-year-old deftly weathered a grilling by a five-member judges' panel. As one of few students -- or even attorneys -- specializing in securities law at the time, Pitt had a decided advantage, recalls Meyer Eisenberg, then assistant general counsel at the SEC and a judge for the competition. The budding barrister rattled off precedents and statutes from memory, demonstrating an astonishing command of the facts.

But Pitt lacked the polished delivery of his opponents from the more prestigious New York University. "Harvey knew more about the case than anyone else," says Eisenberg, who was the lone judge with securities-law expertise. "But he wasn't as smooth as the guys from NYU."

Pitt's team lost, 4­1.

"Harvey was crestfallen," says Eisenberg. "His mother and father were in the audience, and he knew that he was the best guy, that he had answered all the questions. So after it was over I went up to him and congratulated him. I asked him, 'What are you doing next Monday?' and he said, 'What do you mean?' And I said, 'Well, if you come down to the commission, you've got a job.' That was the real prize. So I guess I either get the credit or the blame."

Pitt was born on February 28, 1945, in Crown Heights, then a middle-class section of Brooklyn. Pitt's father had worked his way up from the deli counter to a management position at the Waldbaum's grocery chain. His mother cared for Harvey and his older sister while working as a seamstress. When he was seven, his family moved east to the more serene Marine Park neighborhood, where young Harvey spent most of his time off from public school playing stickball and going to see Brooklyn Dodgers games at Ebbets Field -- until the team split for Los Angeles in 1957. "They broke my heart when they left," Pitt laments.

Numbers -- like baseball statistics -- fascinated Pitt from a very early age, and he considered becoming a mathematician before deciding toward the end of his four years at Brooklyn College -- part of the publicly funded City University of New York -- to pursue law. He did well enough there to win a law scholarship to St. John's in the neighboring borough of Queens. As graduation from law school neared, he had lined up a job as a clerk for a federal judge, but decided instead to take Eisenberg up on his offer. He became a staff attorney in the SEC's office of the general counsel.

There he quickly developed a love for the agency and a reputation as one of its brightest young minds. In 1975, just 30, Pitt became the youngest person ever named general counsel, the most influential staff position at the SEC. Although the head of the enforcement division is better known to the public, the general counsel advises the chairman on policy and the enforcement division on proposed cases. If a case goes to an appellate court or to the Supreme Court, it is the general counsel who represents the SEC.

But after Jimmy Carter won the presidency in 1976, he appointed fellow Democrat Harold Williams to succeed then-SEC chairman Roderick Hills. Williams wanted his own general counsel, and Pitt started getting calls from law firms eager to hire an attorney of his stature and experience. Having just started a family, he accepted a lucrative offer to join the corporate practice of Washington law firm Fried, Frank, Harris, Shriver & Jacobson in 1978.

At the firm Pitt quickly established himself as one of the smartest lawyers in the business, and, for all his drive and intensity, something of a free spirit. His playful side put colleagues and adversaries at ease during stressful situations. Practical jokes were common. One morning at Fried Frank, Pitt came in early, cleared the desk of close colleague James Schropp, turned it upside down and replaced the contents before Schropp arrived.

"It was a shock," recalls Schropp. "I think I had been on a trip, but anyway, I came back and my desk was resting on one of these dollies that people use to move furniture."

Says Pitt: "When you're working very hard, and you're working on very serious problems, it's important for all the people you work with to be able to relax from time to time and laugh. If you don't have fun, you're probably doing the wrong thing -- at least if you have a choice."

Outside the office Pitt is a devoted family man who brags unabashedly about his son from his first marriage, Jonathan, a Yale Law School graduate and rising young Washington attorney. He spends most of his spare time reading, or bicycle riding with the two young children he has with his current wife of 18 years, Saree Ruffin, whom he describes as his "best friend." On an early spring day, Ruffin accompanied him to a Senate Appropriations Committee hearing, where Pitt appealed for more funds to beef up the SEC's policing of accounting fraud. After the proceedings, the couple sauntered out of the Dirksen Senate Office Building arm-in-arm, beaming.

At Fried Frank, Pitt tenaciously represented his clients. Over more than two decades, as he handled some of the biggest cases in Wall Street history, including the defense of notorious insider trader Ivan Boesky, he cemented his reputation as an almost masochistically hard worker. Pitt once toiled until 4:00 a.m. on Thanksgiving morning, drafting a letter to the SEC protesting the agency's treatment of a client. During the sentencing phase of Boesky's trial, he split days between the courthouse in New York and his Fried Frank office in Washington, where he would work well into the night answering questions the Senate Banking Committee had posed in response to Pitt's earlier testimony on whether Wall Street's self-regulatory organizations were properly addressing insider trading and other 1980s ills.

"He'd come back to the office, having worked all day in New York, return phone calls in the evening and then we'd start at 8:00 or 9:00 at night working on the questions," recalls Dixie Johnson, a Fried Frank partner who served as an associate to Pitt when she joined the firm in 1986. "He's an incredibly hard worker."

That work ethic, combined with his deep knowledge of the securities laws, quickly made Pitt the go-to guy for the industry's most sought-after clients. The plea bargain he won for Boesky -- who got an unexpectedly light sentence of three years in prison after implicating junk bond king Michael Milken -- only bolstered his appeal. In the surest sign of his growing stature, other lawyers turned to him. When Stanley Sporkin, the tough-as-nails former SEC enforcement chief who had become a federal judge, needed a lawyer to defend him in an appeal of a decision he made against the government of Germany, he didn't hesitate before calling Pitt.

"I could have had any lawyer around," says Sporkin. "And who'd I pick? I picked Harvey Pitt, because he's damned good. And he won the case for me."

Pitt soon came to represent big Wall Street firms, then entire industries. When Merrill Lynch & Co. faced SEC charges in connection with the derivatives-fueled bankruptcy of Orange County, California, the firm hired Pitt to broker a settlement. The New York Stock Exchange retained him to defend it against charges that it had condoned front-running of public orders by its floor brokers. In 1999, when Levitt asked Wall Street's biggest trading houses to recommend how the stock market might be restructured to better accommodate online investors, they turned to Pitt to draft the white paper the firms filed with the agency.

The SEC chairman's greatest notoriety in recent months has come from his representation of the accounting industry. When Levitt wanted to prevent accounting firms from providing consulting services to their audit clients, the American Institute of Certified Public Accountants hired Pitt. He successfully fended off the attack, but in so doing established himself as the leading advocate for preserving the status quo when it came to accounting industry practices and oversight.

TODAY THE CRITICISMS OF PITT TEND TO COME IN one of two guises: that he is not doing enough to restore investor confidence by crafting and enforcing tough regulations, and that he is, in any case, not disposed to do so because he's too cozy with wayward companies and their bankers and accountants. In short, he's portrayed as just a defender of the establishment, sitting on his hands while Congress and other regulators act to reform the broken financial markets.

This public impression, though, doesn't jibe with Pitt's record. In his first tour at the SEC, he was anything but a proponent of the status quo. The young staffer edited the commission's Institutional Investor Study Report, which assessed the impact that institutional investors were having on the stock market. The report laid the groundwork for the historic unfixing of brokerage commissions on May 1, 1975. That controversial move encouraged price competition, saving investors untold billions in fees. It drove scores of brokerage houses into extinction and is regarded as the foundation for the modern money management industry.

As the agency's general counsel, an activist Pitt fought to preserve the jurisdiction of the SEC and to maintain the broad scope of the securities laws despite efforts by Congress and the federal judiciary to roll back both. Pitt submitted a brief to the Supreme Court when it heard the landmark Chris-Craft case, a key precedent regarding tender offers, arguing that the court should broadly interpret the provisions of federal securities laws pertaining to such offers. Recalls Fried Frank's Schropp, then an attorney in the SEC's enforcement division: "Harvey really fought hard to have the scope of the securities laws reach to the maximum possible extent, so the SEC would have an easier job when it came to enforcement. We didn't get adverse court decisions undone, but I like to think we headed off some of the worst consequences."

Nor does the perception of a sluggish Pitt fit with his record as chairman. Running the SEC ain't easy; it has been grossly underfunded for years. The examiners, accountants and litigators that are so crucial to rooting out, prosecuting and preventing wrongdoing until recently earned 30 percent less than their counterparts at other government agencies. During the past decade the best and the brightest left in droves for much better paying private sector jobs. Levitt railed futilely for much of his tenure about the need to correct the situation.

Pitt, too, faced an uphill battle -- until the scandals erupted. The Bush administration's original fiscal 2003 budget gave the SEC $466 million, an increase of only $33 million. In April Congress authorized a $300 million increase, but the White House initially wanted to part with only an additional $100 million, on the theory that the SEC could not absorb the money all at once. Then last month Congress passed, and the president signed into law, the Sarbanes-Oxley corporate fraud bill, which gives the SEC $750 million for the next year. Even at that level, which will allow Pitt to hire more staff and improve technology, the government is still spending barely a third of what it doles out every year in price supports to soybean farmers.

But even before the money started flowing, Pitt had done an outstanding job of prodding a downtrodden bureaucracy into action. During the first ten months of fiscal 2002, which began October 1, 2001, Pitt's SEC commenced 20 percent more financial fraud enforcement actions than the agency did in all of fiscal 2000, according to SEC statistics. It has sought to bar nearly twice as many executives and directors from serving in those capacities than were barred in 2000, issued twice as many subpoenas and ordered that 37 percent more in wrongfully acquired profits be disgorged. New investigations of accounting fraud are up threefold.

In April, after reaching a record $10 million civil settlement of accounting fraud charges with Xerox, Pitt's enforcement division took the further, unusual steps of suing the company in federal court for falsely inflating its earnings and pursuing civil charges against former CEO Paul Allaire and CFO Barry Romeril. After warning that technical compliance with accounting principles would not insulate companies from punishment if their financial statements were misleading, Pitt acted. In May the SEC ordered Edison Schools to correct its financial reporting, which complied legally with generally accepted accounting principles but which improperly recognized as revenue funds that merely passed through the company from school districts to pay teacher salaries.

So much for inaction. It could be argued, of course, that given the burgeoning scandals, he had no choice but to step up enforcement. Fair enough. By the same token, it's also fair to ask whether Pitt might not have had to deal with today's scandals had such a flurry of actions been undertaken in an earlier administration.

To begin with, Pitt has had to struggle running an SEC on which he was the only commissioner who had been confirmed by the Senate. Until last month, with the Democratic-controlled Senate holding up the president's appointments, the SEC operated with only three out of a possible five commissioners, increasing the possibility that recusals would leave it without a quorum for crucial votes on new rules, enforcement actions, settlements and other key decisions. SEC rules state that three members are required for a quorum; two is acceptable if one or more is disqualified from voting. Paul Atkins, a former accountant, was nominated for the third Republican seat in January. Democrats Harvey Goldschmid and Roel Campos were put forward in February. (By law, no more than three of the SEC's five commissioners can be from the same political party.) Even commissioner Glassman was a so-called recess appointment by President Bush in January -- meaning she too required senate ratification. The Senate did not approve the four new commissioners until late last month.

Pitt has also initiated a series of policy changes and recommendations that have been credited to others or lost in the glare of his highly publicized gaffes. He has proposed a rule requiring that financial reports be filed faster and is preparing another that would mandate immediate disclosure of material information as it is discovered. His most important rule: CEOs and CFOs of the 947 companies with revenues over $1.2 billion in 2001 must now take personal legal responsibility for the accuracy of the financial statements they release.

Pitt has called for companies to reclaim options and other compensation from top management if companies perform poorly -- a truly heretical notion in boardrooms and executive suites. In June he formally proposed a much more independent and powerful accounting oversight board than anyone expected when he first outlined the idea months ago. He sued WorldCom within 24 hours of its astonishing disclosure on June 26 that it hid $3.8 billion in expenses by accounting for them as capital investments.

"I just don't see the substance behind the calls for his resignation," says Treasury undersecretary for domestic finance Peter Fisher, a Democrat. "The kind of stuff Harvey's been doing is a little arcane. It's a little hard to put in a sound bite. But it's the meat and potatoes of this business. That's why Harvey is the right guy in the right place."

One reason Pitt has gotten the SEC humming is that he knows the place. "I remember when a new chairman came in, I would have to go over and acquaint him with all the policies and all the practices and all the strategies," says Sporkin, now a partner at law firm Weil, Gotshal & Manges. "It used to take a long time to do that. But there's no need for anyone to do that with Harvey. He doesn't have to be educated. He gets in there running, and he knows the answers. At a time like this, when the system is under stress, I can't think of anybody better to be in that position."

Certainly, Pitt is pushing his staff to work as hard as he does. Outside lawyers and SEC staffers say that Pitt often gets personally involved in enforcement meetings, many of which have run as long as four hours. The average meeting under Levitt lasted no more than half an hour, these people say. Staffers say they often arrive at work in the morning to e-mail and voice-mail messages left by the chairman late at night or over the weekend. "Harvey is 24/7," says Laura Unger, who served as acting SEC chairwoman between Levitt and Pitt and as a commissioner under both men. "I think in the past chairmen have tended to focus on the bigger picture and delegate, but he's personally involved in every aspect of the SEC's business. And he loves it."

The problem for Pitt is that not enough people seem to be aware of these achievements. Too often his words and deeds get lost. The list begins with his much maligned "kinder and gentler" speech last October. In that same address, his first public speech after being sworn in -- and before the wave of corporate collapses that began with Enron Corp. -- he railed against misleading pro forma earnings releases and called on companies and their auditors to make more complete and timelier disclosures to investors. No one paid this much mind. Instead, Pitt's promise in that same speech of more respectful treatment -- not necessarily leniency -- for accountants garnered all the attention.

On December 11, the day after Enron filed for bankruptcy protection, Pitt proposed that companies and their auditors identify and clearly explain in financial reports how they apply the most critical accounting principles that determine earnings, and what results might have been achieved under different interpretations. Such disclosures might have helped investors better understand the aggressive accounting practices in the past or deterred companies from using them in the first place.

In truth, Pitt could use his bully pulpit more effectively. His penchant for working behind the scenes often means that others get the credit for his efforts, or at least that he fails to enjoy his fair share. Louisiana Representative Baker is widely regarded as the force behind the imposition last spring of strict new rules for limiting and disclosing stock analyst conflicts, but Pitt played a pivotal role by privately nudging an intransigent Wall Street, while Baker publicly threatened legislation.

Says one person familiar with the pair's tag team effort: "They got together and were talking about the issue one day, and Baker basically said: 'Harvey, you know these guys and I don't. You be the good cop, and I'll be the bad cop, and we can get something done.' And that's exactly what happened." Pitt met with investment bank CEOs in New York and convinced them to form a working group of industry research officials, which helped self-regulatory organizations come up with a reform proposal that would satisfy Baker. "My CEO called me right after he met with Pitt and told me to get moving," says one Wall Street research director.

NYSE chairman Grasso emerged as the hero of September 11, even though Pitt organized and presided over the meetings of exchange and brokerage heads that got the markets back up and running. Likewise, Grasso is credited for proposing strict new corporate governance requirements for NYSE-listed companies, but it was Pitt who ordered the stock exchanges to tighten their listing standards to ensure that companies appoint more independent directors and consult shareholders before granting huge options packages to executives.

"Harvey Pitt really pushed us on this," says Hardwick Simmons, CEO of Nasdaq, which has also proposed new governance provisions. "He made it clear that corporate governance is a priority, that he wanted to see results."

Even news of what is perhaps Pitt's most stringent and potentially effective response yet to corporate crime -- requiring CEOs and finance chiefs to attest in writing that their financial statements are accurate -- got lost. The SEC commissioners approved the action on June 12. But by the time The Wall Street Journal got around to writing a page-one article about the plan, it was July 5; most of the country was taking a long summer weekend, blissfully unaware of the news and the man behind it. It is an indication of his lack of media savvy that Pitt and his staff failed to get the news out immediately.

"I almost hate to say this, but Harvey is going to have to have a little bit of Levitt in him," says Dennis Block, a partner at law firm Cadwalader, Wickersham & Taft who headed the SEC's New York enforcement office while Pitt was general counsel in the late 1970s. Levitt mastered the art of attacking issues by posturing and speechifying in public while privately cutting the best deal he could get with the industry. Pitt could not be more different. "He's more of a doer than a talker," says Block. "He's not naturally disposed to go out of his way to tell Congress and the press what they want to hear."

Pitt has also been roundly criticized for his potential conflicts of interest. This criticism was first heard during his Senate confirmation hearings, which he, nevertheless, cleared by a vote of 97­0. It resurfaced as accounting and accountants took center stage in the corporate crises.

Pitt's ties are undeniable, but have they hamstrung him? Will they? Certainly he's not the first SEC chairman with connections to the industry he regulates, whether that was Reagan's chairman John Shad, the former EF Hutton vice chairman, or Clinton's Levitt, the erstwhile brokerage executive and former head of the American Stock Exchange. Or for that matter, Franklin Roosevelt's Joseph Kennedy, the first chairman. One man's conflict is another man's expertise. And Pitt's recusals are hardly precedent-shattering. His 32 recusals are only one more than Levitt registered in his first year.

And Pitt has shown a willingness in the past to take on his own clients. Consider his experience representing the independent directors of MiniScribe. The disk-drive manufacturer went bankrupt in January 1990, accused of booking revenue from bricks it shipped to customers in disk-drive boxes. Pitt harshly criticized MiniScribe and its auditor, Coopers & Lybrand, in a report to the SEC, despite the fact that he also represented Coopers on other matters.

"It was an amazing fraud on investors," says Pitt. "We looked in great detail at the conduct of everyone associated with that company and called our shots right down the middle." In 1992 Coopers and investment bank Hambrecht & Quist, now part of J.P. Morgan Chase & Co., agreed to pay $128 million to settle shareholder and creditor lawsuits connected to MiniScribe.

To be sure, the conflicts of interest issue, central to the entire crisis of confidence now confronting the U.S. economy, will dog Pitt for the rest of his tenure, however long it lasts. Because he has represented so many of the people and firms that the SEC must now punish, there will always be questions about whether he pulled punches or could have acted more quickly.

Consider the episode in early May when Pitt faced new allegations that he ran afoul of ethics rules by discussing SEC probes into Xerox and its auditor, KPMG, with new KPMG CEO Eugene O'Kelly. In a memo to employees, O'Kelly said that he argued his firm's case to Pitt in a private meeting, an assertion Pitt strongly denies, saying that he granted O'Kelly an introductory meeting and that the two did not discuss any enforcement matters. He insists that he didn't know O'Kelly or even know of him before meeting him that day.

Still, Pitt defends his meetings with former clients. "If someone wants to come in for ten to 15 minutes and introduce themselves and say, 'We will support your legitimate efforts,' I think that helps investors," he says. "I meet with tons of people. One of my former clients was TIAA-CREF, and they want to talk about corporate governance. And I'm happy to do that. If you had a chairman of the SEC who isolated himself, you'd have someone in an ivory tower. We're dealing with real people, real markets, real problems -- and this is how you solve them."

That answer won't satisfy all the critics who want him to pass the Caesar's wife test. Moreover, it attests to a kind of obtuseness that in the Washington world of spin seems hard to believe. After all, he could simply say to critics: "You're right. I learned my lesson. I won't do it again."

But the appropriate question for many of them is whether they are truly interested in having an effective SEC chairman or a convenient target by which to attack the administration.

The media played their part in exposing his blindness to appearances, painting a picture of a man lacking ethical sense. Even The Wall Street Journal's editorial page, Pitt's natural ideological ally, questioned his credibility. The press may have overplayed his fumbles, but Pitt gave them the ammunition.

Make no mistake about it, either through naiveté, pigheadedness or bad advice from his staff, Pitt has set himself up for much of the grief he has gotten. Republican defenders can't blame Democrats alone; and they can't blame the press entirely, either. The Journal editorialists concluded that Pitt was fast becoming a liability to the Bush administration.

True, Democrats are looking to make political hay by blaming Republicans for the last year's corporate crime wave and stock market paralysis. But Pitt has allowed himself to become a symbol of the problem. He's not the problem himself. He and his staff need to learn some symbolic logic, how to shape the national debate. A more politically calculating man of means might, for example, have announced his intent to work without pay to offset the widely held image of corporate greed.

Although Pitt has drawn partisan heat, he is no ideologue. He believes in the workings of the free market, but more than anything else he's an advocate, perhaps the best advocate in the country in his field.

What he has to do now is convince the country that he has one client and that client is the investor. His friends think he has. "He's always been a vigorous advocate and representative, whether it was for us at the SEC years ago or for his clients in private practice," says longtime pal Levine, who worked in the SEC's enforcement division while Pitt was general counsel. "People criticize his past and his connections, but everyone has those. I think he really feels that he doesn't have any clients now except for the public. He has put everything else aside."

The irony is that this possibility has Republican allies worried. Their fear is simple: that to reclaim his lost stature, to throw off the scapegoating, Pitt will overreact, overregulate and throw the markets into chaos.

This leaves Pitt with at best shaky allegiances on both sides of the aisle. As one ideological rival of Pitt's says sympathetically, "There's blood in the water around Harvey right now, and even though he's trying to do the right thing, he's going to have a rough time of it." Maybe that's why nobody wanted the job in the first place.


'Je me récuse'

One year ago -- before names like Enron Corp., Adelphia Communications Corp. and WorldCom joined the lexicon of infamy -- the Senate voted unanimously to confirm Harvey Pitt as the 26th chairman of the Securities and Exchange Commission. They did so despite criticism that Pitt would have too many conflicts of interest to function effectively as the nation's top securities cop.

The criticism was not unfounded. The new chairman had to recuse himself from 32 of the commission's votes during his first ten months in office. Some of the recusals were particularly embarrassing: A vote to investigate accounting firm Ernst & Young was overturned by a judge because the commission had lacked a quorum; and one to examine Arthur Andersen's role in the collapse of Enron.

The mandatory one-year "cooling off" period -- during which Pitt was required to refrain from business matters related to former clients -- is about to expire. Rather than voluntarily extend the period, Pitt says he is duty-bound to lend his considerable industry expertise to whatever the commissioners find themselves voting on.

"My prior relationships have given me knowledge of the way the various entities and industries and professions that we regulate actually operate," says Pitt. "As one of the senators said at my confirmation hearings, in a sense I know where the bodies are buried. People should look at my background as a positive and not a negative."

Pitt is not the first SEC chairman to face conflicts of interest because of previous affiliations. Indeed, president Franklin Roosevelt selected Joseph Kennedy as the first SEC chairman because his checkered past made him intimately familiar with exactly the kinds of malfeasance the commission was created to prevent. Arthur Levitt, Pitt's immediate predecessor and the longest-serving SEC chairman, had spent his entire career in the securities industry -- as a brokerage firm sales manager and chairman of the American Stock Exchange. That didn't stop Levitt's SEC from sanctioning Citigroup -- which is run by Sanford Weill, Levitt's old partner from the firm of Cogan, Berlind, Weill & Levitt -- for allegedly manipulating the prices of Nasdaq stocks and overcharging for municipal bonds, among other offenses. Levitt sat out 31 commission votes during his first year at the helm. -- J.S.