N By Thomas S. Mulligan
EW YORK – A new watchdog board created to address the recent wave of corporate accounting scandals was rendered leaderless Tuesday, as former FBI Director William H. Webster resigned the top post amid what he called a “perfect storm” of controversy surrounding his appointment.
Webster’s action capped weeks of turmoil stemming from a bitterly divided 3-2 vote of the Securities and Exchange Commission on Oct. 25 that approved his nomination.
Since then, a major accounting firm accused Webster of making “false and misleading statements” about his awareness of financial problems at a small company at which he had been a director.
The political fallout led to last week’s resignations of SEC Chairman Harvey L. Pitt, who had championed Webster’s nomination, as well as the SEC’s top accountant, Robert Herdman.
Webster, 78, had strongly hinted in recent days that he would quit rather than hobble the new board at its launch.
In a letter to the SEC on Tuesday, he said: “I now believe my continued presence on the board will only generate more distractions which will not be helpful to the important mission of the board.”
The exodus of key regulators comes at a time when investors have been clamoring for greater oversight of corporate America – and the accounting profession – in the wake of the stock market’s meltdown and financial scandals at such giant companies as Enron Corp. and WorldCom Inc.
Congress responded with the Sarbanes-Oxley Act, signed last summer by President Bush, which, among other reforms, created the new Public Company Accounting Oversight Board to establish standards for corporate auditors and to monitor and discipline accounting firms.
Although Webster’s departure threatened to bring the work of the fledgling board to a standstill, other board members said they would proceed with their previously scheduled organizing meeting in Washington Wednesday morning.
“I’m very anxious not to lose momentum,” said board member Willis D. Gradison Jr., a former Republican congressman from Ohio. He said he hoped the SEC would name an acting chairman so that the board could proceed to more substantive matters, such as hiring a staff and securing a budget.
The five-member board gets start-up funds from the SEC’s budget, which must be reimbursed when the board begins collecting fees from accounting firms and public companies.
Because the board reports to the SEC, the appointment of a permanent chairman probably will not come not come until after a new SEC chief is named, “and that could be a long way off,” Gradison said.
Sen. Richard C. Shelby, R-Ala., incoming chairman of the Senate Banking Committee, said the new SEC chairman should have a role in selecting the head of the oversight board and implied that there should be no rush to pick the SEC chief.
“While it is greatly important that a new SEC chairman is selected, it is crucial that someone of the highest quality and integrity is chosen,” Shelby said in a statement Tuesday. “It is a significant position that should be filled carefully and not with great haste.”
By law, the new board must be fully operational by April.
The Webster debacle is rooted in his work as a director for U.S. Technologies, a small, now nearly insolvent Washington-based company that has been sued by shareholders for fraud.
Webster was the head of U.S. Technologies’ audit committee in July 2001 when the company’s accounting firm, BDO Seidman, warned the committee of problems it saw with the company’s internal financial controls.
A month later, U.S. Technologies fired BDO Seidman, saying their work was too expensive.
Webster had told Pitt about the controversies at U.S. Technologies, but Pitt did not inform the other four SEC commissioners before the vote on Webster’s appointment. Pitt asked the SEC’s Herdman and his staff to look into Webster’s role at the company, and the staff found “nothing of concern,” a Pitt spokesman has said.
The revelations about Webster’s role at U.S. Technologies, and that Pitt had decided against sharing the information with his fellow commissioners, led to a firestorm of criticism that drove Pitt to resign last week. Herdman also quit.
Webster, a former federal judge who directed the FBI from 1978 to 1987 and the CIA from 1987 to 1991, has not been accused of wrongdoing. But BDO Seidman sued U.S. Technologies on Nov. 1, alleging that Webster had made “false and misleading statements” when he told The Washington Post that the accounting firm didn’t inform him of U.S. Technologies’ problems until after the auditors were terminated.
Webster has since said that whatever he learned from BDO Seidman in the July 2001 conference call did not set off “bells” in terms of its importance.
Webster could not be reached for comment on Tuesday.
In a statement accepting Webster’s resignation, Pitt, whose resignation has not yet taken effect, said: “I continue to believe that investors would have benefited from Judge Webster’s dedication to the best interest of the American people.”
Other members of the accounting board pledged to continue with the panel’s set-up while awaiting a new chairman.
The board’s initial work will involve adopting a fiscal calendar, setting up a bank account, incorporating as a nonprofit organization and other such “ministerial housekeeping chores,” said board member Kayla J. Gillan .
Wednesday’s informal board meeting, originally slated for Webster’s Washington law office, instead will be held at the office of board member Daniel L. Goelzer, a partner in the giant Washington law firm of Baker & McKenzie.