US watchdog chairman resigns
WASHINGTON - Harvey Pitt, who provoked outcries over his ethics in a string of political missteps, resigned under pressure as the government's top securities regulator. The White House, said it could be "weeks, months," before Pitt is replaced.

President George W. Bush wants a Securities and Exchange Commission chairman who will "help crack down on corporate corruption that the president feels so strongly about and who also will continue Pitt's very successful record of taking action against corporate corruption," said White House spokesman Ari Fleischer.
Pitt's turbulent 14-month tenure as chairman of the Securities and Exchange Commission came at a time when the administration needed to shore up investors rattled by accounting scandals.

The Democrats lost one of their favorite targets. Pitt told Bush in a letter Tuesday that "the turmoil surrounding my chairmanship" had made it difficult to stay in the job. "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."

The Bush administration defended Pitt's appointment and his performance.
"I don't think he went soft on the accounting industry," Fleischer said. "There were other circumstances that arose that Mr. Pitt reacted and resigned."
Three administration officials, speaking on condition of anonymity, said the White House welcomed the resignation of a regulator who had created political problems for Bush before Tuesday's mid-term elections.

Pitt's stumbles had been seen as weakening the SEC at a time when the market was reeling from corporate debacles, including Enron Corp, WorldCom Inc. and Global Crossing Ltd, and the economy was fragile. Senate Minority Leader Trent Lott due to become the majority leader now that the Republicans have recaptured the Senate, said Pitt made the right decision. The SEC chairman must be someone "that has the confidence of the American people, the markets and both sides philosophically and politically," Lott said.

Pitt attended a routine commission meeting on Wednesday, listening to staff members and asking questions as they discussed proposals requiring attorneys to report company violations to a top executive. The five commissioners later voted to tentatively approve the rules and Pitt was hustled out of the room and away from reporters by aides and security guards.

Commissioner Harvey Goldschmid, a Democrat who had bitterly opposed Pitt's selection of former FBI director William Webster to head a new accounting oversight board, said during the meeting that the last weeks have been "a period of enormous pain" for the SEC.

Pitt's latest fumble came when he failed to share with fellow commissioners information about Webster's past before the agency voted last week to put him in charge of the accounting panel.

The revelation led SEC commissioners, including Pitt, to request an internal investigation of Webster's selection - and renewed calls for his resignation from Democrats and other Pitt critics.

Pitt withheld information about Webster having headed the board of directors' auditing committee at U.S. Technologies, a company facing investor lawsuits alleging fraud. Webster told The New York Times that Pitt assured him that SEC staffers had looked into the issue and determined it would not pose a problem.

Media leaks probed
A retired police officer hired as a consultant by the SEC is conducting an internal inquiry to find out if anyone had leaked information to the media about the investigation into the transactions involving Aitken Spence shares.

He has even obtained a statement from the Director General Dr. Dayanath Jayasuriya regarding queries by the media about the investigation.
The consultant also went to the extent of calling media organisations covering the story and questioning journalists from The Sunday Times about their contact with SEC officials.

Probe raises conflict of interest issues
The mission of the Securities and Exchange Commission is to 'promote, develop and maintain a securities market that is fair, efficient, orderly and transparent.'
However, the credibility of the SEC in functioning as an independent watchdog and in fulfilling its mission comes into question when the members of the commission themselves have other business dealings.

"Since there is a lot of prestige involved in being on the board, they must be bold enough to transfer their business interests in the care of a fund manager, to operate it on a blind trust," a former member of the SEC said.

He added, "If Harvey Pitt, the Chairman of the SEC in USA resigned because of a conflict of interest, then it's obvious that this is an international issue calling for independence and authority in the SEC."

A stockbroker had a different view. "A watchdog body like the SEC needs an experienced businessmen to head it as the chairmen." Naomal Gunawardena, corporate lawyer and a senior partner of the law firm Nithya Partners, said that it is up to the people who appoint the members of the commission to decide whether to appoint such people to the SEC or not.

'There is nothing to preclude them from being directors or shareholders of any company. The main thing is the people who appoint them to the SEC should keep in mind that these issues will have such conflicts of interests that they should not be appointed".

In a case where the SEC's own members are being investigated, a lot depends on the calibre of the people involved, said Gunawardena. "If they feel that some wrongdoing has been done and if they are men of some standing then they will go ahead and do what needs to be done."

In the present situation, Gunawardena said the SEC chairman should resign at least till the conclusion of the inquiry. If he remains the chairman the general perception would be that justice is not being done. "It is said that justice should not only be done but it should also be seen to be done," he added.

An executive from one of the stockbrokers said that the investigation is a clear indication as to the extent in which the rules and regulations of the SEC could be applied. "It is indeed wrong for the SEC chairman to be a shareholder in public quoted companies," he said.

A former SEC chairman said there is a very clear division of responsibilities between the SEC Commissioner and the secretariat, which does the investigations. The latter, including the Director General, is responsible for day-to-day operations but has to obtain the approval of, and submit all findings to, the Board. It is the Board that takes decisions as to what action should be taken. The Director General cannot decide on litigation or penalties.

The Commissioners can call for information on investigations and can give directions to the SEC secretariat. According to the Act, no employee, including the Director General, should engage in any share transactions while working at the SEC. But this restriction does not apply to the Chairman or the Commissioners.

"It is immoral for businessmen with private business interests to serve as Commissioners because they are privy to information about companies," the former SEC chairman said. "There seems to be a lacunae in the law that the Commissioners are not debarred from share transactions.

They too should be debarred from share transactions to maintain the integrity of the SEC." Commission members who are directors of companies are supposed to withdraw from SEC meetings if a company or a case they are involved in comes up for discussion. "It is best for company directors not to be Commissioners of the SEC," the former chairman said. "The SEC is sacrosanct."