The U.S. General Accounting Office (GAO) is expected to release a report next week on the events leading up to the appointment - and subsequent resignation - of William Webster as Chairman of the Public Company Accounting Oversight Board. The report is expected to clear outgoing SEC Chairman Harvey Pitt of most responsibility for the incident.
Chairman Pitt resigned on Election Day after being widely blamed for forcing the other SEC Commissioners to vote on Mr. Webster's candidacy without knowing vital information about his background. The Commissioners later learned of a lawsuit involving actions taken by Mr. Webster as audit committee chairman of US Technologies. Calls for Chairman Pitt's resignation escalated after Mr. Webster told the media he had alerted Chairman Pitt to the lawsuit prior to his appointment.
The draft of GAO's report confirms that Mr. Webster warned Chairman Pitt of a potential problem. Chairman Pitt asked Mr. Herdman to investigate, and SEC's enforcement division told Mr. Herdman's staff of an investigation into the financial dealings of senior management at US Technologies. Even though this information was not related to Mr Webster's position on the audit committee, Mr. Herdman did pass along the information to Chairman Pitt.
Later, however, SEC's division of corporation finance told Mr. Herdman (or his staff) that BDO Seidman, US Technologies' auditor, had raised problems with the company's internal financial controls and that the auditor had been fired soon after. But Mr. Herdman did not pass along this second piece of information to Chairman Pitt. ("Pitt set to escape full blame for SEC debacle." Financial Times, December 11, 2002)
Chairman Pitt is remaining in the role of chairman until his successor can be named. Earlier this week, President Bush nominated William Donaldson, a Wall Street veteran, to chair the SEC.