Harvey Pitt, chairman of the Securities and Exchange Commission and the guy in charge of one major investigation into the Enron collapse, is becoming the center of a controversy himself. Before he was appointed by President Bush on August 4, 2001, Pitt served as a prominent attorney for the nation’s five big accounting firms—a list that includes Enron’s auditor, the mega-firm Arthur Andersen.
Andersen now stands in the spotlight for famously issuing orders to destroy documents related to Enron—just one day after the SEC started its inquiry. Those records might have provided key evidence of the energy trader’s shoddy accounting practices and debt shuffling. Andersen’s top executives have since fired the partner in charge of the Enron audit and placed other workers on leave while they try to recover lost e-mail and other documents for federal investigators.
In his former life, SEC Chairman Pitt might have been called in to help Andersen execs with a situation like this. Now he’s investigating a case that very much involves them.
That’s why New Jersey’s Senator Jon Corzine, for one, has suggested Pitt follow Attorney General John Ashcroft’s decision to recuse himself, if only for appearance’s sake.
Pitt isn’t giving in. “To talk about recusals at this point misperceives how this agency operates,” Pitt told The Washington Post in an interview this week. The SEC chairman is normally forbidden from dealing with a former client for a year after taking up his current position. But Pitt said the commissioners don’t get involved in staff investigations, and that “it is not the function of chairman of the SEC or any commissioner to manage any investigation.” If asked “to do anything regarding Enron,” the chairman said, he would follow the “letter and the spirit of the ethical requirements of this office.
The SEC and the accounting industry are reportedly working out details of a plan to set up a private-sector regulatory body to set rules for the destruction of records.
Pitt wouldn’t discuss how he voted when the SEC decided to launch an investigation into Enron, according to the Post. But his views in the past may offer a glimpse of his thinking. Pitt was the co-author of a 1994 Cardozo Law Review article entitled “When Bad Things Happen to Good Companies: A Crisis Management Primer.” The paper was dug up by Corporate Crime Reporter, a small watchdog newsletter in Washington.
“At the crux of many corporate crises there are typically a handful of key documents,” Pitt wrote. “Corporate counsel must take every available opportunity to imbue company executives with the understanding that their documents will take on separate lives when they enter the treadmill of litigation.
“Ask executives and employees to imagine all their documents in the hands of a zealous regulator or on the front page of The New York Times. Each company should have a system of determining the retention and destruction of documents,” he continued, adding, “Obviously, once a subpoena has been issued, or is about to be issued, any existing document destruction policies should be brought to an immediate halt.”
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