Accounting firm accuses SEC appointee of dishonesty

N By Walter Hamilton

nEW YORK – One of the nation’s biggest accounting firms Monday accused William H. Webster, appointed to head the nation’s new accounting oversight board, of making “false and misleading statements” about his awareness of financial problems at a small company at which he had been a director.

The court filing by auditing firm BDO Seidman deepens the controversy over Webster’s appointment to the board. Revelations last week about his service as a director at U.S. Technologies Inc. triggered a new crisis of confidence in Securities and Exchange Commission Chairman Harvey L. Pitt, who championed Webster for the post.

BDO Seidman said it told Webster of accounting troubles at U.S. Technologies a month before the company fired the accounting firm in 2001.

Webster’s comments last week to The Washington Post, in which he said BDO did not inform him of the problems until after the termination, are “false and misleading,” the firm said in a federal court filing in Washington.

In the filing, BDO petitioned the court for permission to release confidential information that the firm said would prove that it warned Webster and other members of U.S. Technologies’ audit committee on July 13, 2001, about significant “internal control” problems. U.S. Technologies replaced BDO as its auditor on Aug. 16, 2001.

The timing of the warning has become an “issue of national interest” because of a controversy over Webster’s appointment to the accounting oversight board, the filing said.

Webster, 78, is a former federal judge and former director of the FBI and the CIA.

It is unclear whether the law allows BDO to release the records gathered in the course of a confidential audit, and the company is seeking explicit permission, the filing said. BDO had no further comment.

In an interview Monday, Webster said that the audit committee held a conference call with BDO on July 13 but that he does not remember the specifics of the meeting and he has no notes from it.

If BDO had issued a significant warning, he would have remembered that and would have kept notes reflecting that, Webster said.

The absence of such notes “means to me that no bells went off” at the July meeting, he said.

BDO advised the company to make improvements, such as hiring an experienced chief financial officer, in a letter dated Aug. 31, 2001, Webster said. That was two weeks after the auditing firm had been replaced.

U.S. Technologies subsequently made the changes BDO recommended, Webster said.

U.S. Technologies fired BDO because it took the firm too long to complete its annual audit and because it charged too much – more than $700,000 – not because it had raised issues about internal controls, Webster said Monday.

Webster’s work at U.S. Technologies sparked a furor last week when it was revealed that Webster told Pitt about U.S. Technologies’ troubles – including that the firm had been sued by shareholders alleging fraud – in advance of the SEC’s vote on Webster’s appointment to the accounting-oversight board Oct. 25.

Pitt did not inform the other SEC commissioners or the White House before the vote. The SEC said Pitt referred the matter to agency staff who investigated but found “nothing of concern” to bring to the other commissioners’ attention, according to a Pitt spokeswoman.

The revelations have spawned a number of investigations of Pitt’s conduct and new calls for his resignation.

Webster said he would think about resigning from the accounting oversight board if political issues involving him interfered with the new panel’s work.

“I’m not going to stay at the expense of the board doing its work,” Webster said.