Pitt resigns from SEC chairmanship amid mounting turmoil

H By Walter Hamilton and Edwin Chen

harvey L. Pitt, the embattled chairman of the Securities and Exchange Commission, resigned under pressure late Tuesday after his latest misstep left the White House embarrassed and unwilling to fight for his future as the nation’s top markets regulator.

Pitt’s resignation ends a term marked by repeated gaffes and controversies in a year when public trust in financial markets has been shaken by a steep slide in stock prices, widespread allegations of Wall Street misconduct and massive corporate accounting scandals.

But the decision by the former star securities lawyer to depart also creates new complications for the SEC and the Bush administration.

The agency faces a huge workload in negotiating Wall Street reforms and implementing corporate governance changes mandated by Congress. Yet it is unclear how quickly a new chairman can be named by President Bush and confirmed by the Senate, given partisan politics that Pitt helped inflame in recent weeks.

In a letter to Bush on Tuesday, the 57-year-old Pitt said it is “with deep regret that I have decided to tender my resignation to you as chairman, and a member, of the Securities and Exchange Commission.

“The issues confronting our capital markets are enormous, and I am pleased I was able to play a role in starting to restore investor confidence,” Pitt said.

“Unfortunately, the turmoil surrounding my chairmanship and the agency makes it very difficult for the commissioners and dedicated SEC staffers to perform their critical assignments. Rather than be a burden to you or the agency, I feel it is in everyone’s best interest if I step aside now, to allow the agency to continue the important efforts we have started.”

In recent days, Washington sources have suggested several people as possible successors to Pitt. Among them: James Doty, a former SEC general counsel; Michael Chertoff, an assistant attorney general at the Justice Department; and Richard Breeden, who served as SEC chairman in the early 1990s.

Pitt sparked a firestorm last week after it was revealed that he did not share with the other four SEC commissioners potentially damaging information about William H. Webster, whom Pitt had championed to be chairman of a new accounting-industry oversight board.

Webster, a former federal judge, had served as a director of a small Washington-based company that had a run-in with its accounting firm and has been sued by shareholders for fraud.

Webster told Pitt about the issues before the SEC voted on Webster’s appointment on Oct. 25. But Pitt did not inform the other SEC commissioners. Webster was confirmed in a 3-2 vote, with the Republican majority on the commission voting in favor and the two Democrats in opposition.

When the four other commissioners learned that Pitt had not shared the information about Webster, they demanded an investigation. Meanwhile, key Democrats in Congress howled for Pitt’s resignation, saying he had withheld potentially critical facts about Webster.

The White House, especially Chief of Staff Andrew H. Card Jr., also was aggravated because Pitt failed to share the information with Card, who had favored Webster’s appointment.

Perhaps sensing the inevitable, Pitt’s staff sent indications to the White House several days ago that he was “strongly considering” stepping down, a White House official said Tuesday night.

The White House made no attempt to dissuade Pitt. A senior Bush official on Sunday said it was likely the president would seek to oust Pitt after the election.

Late Tuesday, Pitt informed the White House personnel office that he had decided to step down, and then sent a letter of resignation to Bush.

Pitt, considered a brilliant lawyer, began his career at the SEC in 1968. He rose to become general counsel of the agency by the late 1970s, before resigning for private practice.

In the 1980s Pitt was one of the nation’s highest-profile corporate lawyers, working for a long list of major companies, including securities firms and accounting firms.

When Bush named him to head the SEC 15 months ago, it was the culmination of Pitt’s long-held dream to return as agency chief.

But from the start Pitt was dogged by criticism that he was too close to the securities and accounting industries. Though Pitt angrily refuted charges that he could not be an independent public servant, a number of gaffes over the last year deepened criticism of his tenure.

Earlier this year, for example, Pitt met privately with executives of major accounting firms. The meetings raised concerns that Pitt was considering preferential treatment for the firms, even as public outrage was growing over accounting scandals at companies such as Enron Corp.

In the summer, Pitt irritated the White House by seeking to elevate the SEC chairmanship to Cabinet status and raise the position’s salary.

Some observers expressed dismay with the political conflicts that seemed to upend Pitt at every turn.

“It’s a shame that he wasn’t allowed to run the SEC the way he wanted to from the beginning,” said Junius Peake, a finance professor at the University of Northern Colorado. “He is a very good man and well-qualified, but unfortunately he doesn’t have the political skills to run what is supposed to be an independent agency.”

As for President Bush’s nominee to succeed Pitt, Peake said politics will play a pivotal role once again. If the Democrats retain control of the Senate, the president will face extra pressure to choose a “highly confirmable” candidate who could survive hearings overseen by the opposition party, he said.