The U.S. Securities and Exchange Commission (SEC) asked the agency's inspector general to review the selection process for the Public Company Accounting Oversight Board (PCAOB) following press reports that newly-appointed Chairman William Webster is implicated in a fraud case involving past corporate ties.
The press reports raise questions about the extent to which the facts of the case were disclosed and appropriate inquiries made. Mr. Webster said he disclosed the lawsuits to SEC Chairman Harvey Pitt and Chief Accountant Robert Herdman. But critics say the information was withheld from the other Commissioners, who selected Mr. Webster by a narrow margin after an unusually bitter debate.
The fraud case at issue involves U.S. Technologies, a small publicly traded company whose audit committee was chaired by Mr. Webster until July 2002. Although Mr. Webster was not named in the lawsuit, critics say he is involved by implication because the case raises questions about his unwillingness to investigate matters raised by the company's independent auditor, BDO Seidman.
"This is exactly the kind of situation that the accounting oversight board is supposed to change, and that the new law creating the oversight board is supposed to fix," charged James D. Cox, a securities law professor and author of an accounting textbook. "To let something like this go shows really bad judgment, and I think is automatically disqualifying."
Mr. Webster said he didn't think the incident would impair his ability to head the accounting oversight board. "But that is not for me to judge," he added. Speaking of his contacts at the SEC, he added: "I always made a point of telling them everything I knew. I'm sure they wouldn't have gone through with it if they didn't have confidence in me." (New York Times, "Audit Overseer Cited Problems in Previous Post," October 31, 2002.)
Sen. Paul Sarbanes and two other senior lawmakers asked the General Accounting Office, the investigative arm of Congress, to conduct its own probe of the matter.