SEC Chairman Harvey Pitt Goes on the Record

This is a partial transcript from On the Record with Greta Van Susteren, July 19, 2002. Click here to order the entire transcript of the show.

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JOHN GIBSON, GUEST HOST: Hi again, everybody. I'm John Gibson, filling in for Greta Van Susteren, and this is On the Record.

Bad business, corrupt CEOs and golden parachutes. When big business goes bad, the average American takes a big hit. Should investors be worried? Greta asked that of the market's top cop, Securities and Exchange Commission chairman Harvey Pitt.


HARVEY PITT, SECURITIES AND EXCHANGE COMMISSION, CHAIRMAN: They are worried, and they have a reason to be worried. We're doing a number of things for them, Greta. First of all, we are reforming the system. They're going to get numbers and information when it's timely, when it's real, when it's valuable, when it means something. Second, we're going to...

GRETA VAN SUSTEREN, HOST: Real numbers? I mean, because that's...

PITT: Real numbers.

VAN SUSTEREN: I mean, because that's really been sort of the rub, is that it seems like they haven't been getting real numbers.

PITT: That's absolutely right. When I came into this job, I wanted to reform the system. Now, with the mess that I've inherited, I have to reform the system. And we are going to do that. They're going to get good numbers. They're going to get honest and reliable numbers.

Second, we are beefing up the plain English disclosures, so people know the truth, they know what's going on and people can't fool around and obscure things.

And the third thing we're doing is we're imposing a rigorous regime on the accounting profession to make sure that accountants live up to their public responsibilities. The last thing we're doing is we're holding CEOs and CFOs accountable for their numbers, for their disclosures, for their statements. We're not going to let CEOs and CFOs profit while their shareholders and employees lose money.

VAN SUSTEREN: Well, what I understand from that regulation about holding CFOs and CEOs responsible, making them sort of sign the bottom line, is that it only applies to businesses with revenues of about $1.2 billion. Is that right?

PITT: Well, what you're referring to is an order that we issued in the interim, but I have put out a proposed rule which requires the CEO and CFO of every single public company to certify their financial statements.

VAN SUSTEREN: Does the rule supersede the order -- the rule supersede the order?

PITT: The rule will apply for all companies for all time.

After WorldCom, I put out an order with the commission that requires CEOs and CFOs to do -- of the largest companies to do it immediately.

Now we think the public has the right to know are there problems out there and what is the SEC doing about it.

VAN SUSTEREN: I don't want to beat a dead horse, but does that mean every publicly-held company today, CFO, CEO, when they file their next statement with the SEC, is going to be held accountable or just some?

PITT: By the middle of next month, the CEOs and CFOs of the 1,000 largest companies will certify personally the financial statements that they file.

By, I would say, a month and a half to two months from now, every public company will be required to do that.

VAN SUSTEREN: What happened? Why did these numbers get so loosey-goosey, in some instances maybe even criminal to the American people? I mean, we see these -- every single day, we read about another corporation. What happened?

PITT: Well, I think that what happened is not only the irrational exuberance of the '90s, but I think a loss of fundamental values. Somewhere along the line, CEOs and CFOs and accountants lost track of where their responsibilities lie. They lie with the shareholders and the employees.

Now, I don't think it's widespread, but the fact of the matter is, if there's even one, that's one too many. We have to have a zero-tolerance approach to this. And so we are now in the process of revising a system that's been broken for a while and has needed repair for a long time.

VAN SUSTEREN: Well, I think a lot of the American people think the accounting firms and, certainly, some of the large ones, are almost in bed with these big corporations and look the other way.

I mean, you know, whether or not -- I mean, certainly, there are a lot of very good companies out there, but the perception is -- is that it -- they're pretty thick, the accountants and the companies. What about that?

PITT: Well, I think that people worry about the fact that the accountants derive a lot of fees from the companies that they then are required to report upon. That's inherent in the system.

And one of the things that we've proposed doing is making certain that the accountants can only be responsible to the public, not to the people who are trying to profit from false numbers and false statements.

VAN SUSTEREN: How do you do that, though, because they're paid by the company, they're not paid by the public, and so, you know, certainly, an accountant who is going to be rather strict with accounting measures is not likely to get that contract renewed.  Someone who is maybe a little bit easier on the company is more likely to get that next contract.

PITT: Well, there are number of ways that you do that.

First and foremost is we don't think that the CEOs and CFOs and senior management should decide which accounting firm gets hired and which accounting firm is fired and whether they're retained. We think that decision should be made by truly independent directors whose income doesn't depend on how the accountants come out on the numbers.

So we think if we take that power away from the CEOs and CFOs, we are going to create a real independence between the accountants and the firms that they audit.

The second thing is that there are a number of activities that we think create inherent conflicts, and where that exists, they should be prohibited. The commission has some rules going into effect now.

There's legislation on the Hill that would go beyond that, the Oxley bill in the House and the Sarbanes bill in the Senate, and that will provide another requirement.

The third thing we're doing is we are -- we're going to propose a rule that says that no individual engagement partner, audit partner can be compensated for cross-selling services other than the audit to his audit clients because what happens now is, if you're an engagement partner and you can get an extra $25,000 or $50,000 for bringing in more business that's not audit related, that might cause you to lose your focus. We're not willing to accept that.

VAN SUSTEREN: Now the SEC can impose fines and can take some other actions, but it can't send people to jail. That's for the Justice Department, right?

PITT: That is right.

VAN SUSTEREN: All right. Is your -- under your supervision as the SEC chairman, are you going to be rigorous in sending referrals over to the Department of Justice?

PITT: Well, we already are, and, before I get there, there's one other thing we can do. I believe that, for people who are not loyal to their obligations to the public, punishment has to be severe. We want to hurt these CEOs and CFOs where they live.

So what we do have the power to do, which the public may not realize, is we have the power to strip them of their salaries, their bonuses, their stock options, and we have the power to seek from the courts an order that prohibits them from ever being an officer or director of any public company.

VAN SUSTEREN: But some are already fat cats. I mean, you see pictures, for instance, of the man from WorldCom building this $12-million or $15-million home on the water in Florida, I mean, and...

PITT: I know.

VAN SUSTEREN: ... he's maybe the poster child at this point. But, I mean, stripping him of all those rights -- big deal. He'll just go down and clip coupons.

PITT: Well, you are right, and I also think that hard time for hard crime has to occur.

One of the first things I did when I came in as chairman was ask our enforcement division to touch base with all of the U.S. Attorneys with the Department of Justice and make sure that we were coordinate so that they would be expecting cases on referral from us.

The president has taken that a step further and set up this task force, this corporate financial fraud SWAT team, and I'm a member of that. The SWAT team is headed by Larry Thompson who's doing a terrific job, and we are working in tandem with the Department of Justice to make sure that people who abuse the public pay and pay heavily with jail time.


GIBSON: Up next, much more of Greta's interview with Securities and Exchange Commission Chairman Harvey Pitt. We'll hear what Wall Street's top cop has to say to worried investors next.

And later, an arrest in the murder of Samantha Runnion. We'll have the very latest live from Orange County, California.


GIBSON: So what is happening with your retirement funds?

We're back with more of Greta Van Susteren's interview with Securities and Exchange Commission Chair Harvey Pitt. She asked him why the average American should trust his decisions on big business?


PITT: I've been on the job now for about 11 months. I have no intention of practicing law again, so, as far as I'm concerned, my only client and the only people I'm interested in are the American investing public.

How do they know it? They can look at what we're doing. Unfortunately, the information about what the SEC is doing doesn't always get out to the public because there are so many politicians who want to take advantage of this situation that their sound bites of attack and finger pointing drown out our message of all the things we're now doing to restore confidence to the market.

VAN SUSTEREN: But when you talk about -- I mean, when you talk about being a lawyer, one of the issues is the appearance of impropriety, not actual, but appearance of...

PITT: Right.

VAN SUSTEREN: ... impropriety. Now a lot of people are probably thinking, "Why shouldn't someone else do this who doesn't have this history?" Even if Harvey Pitt is the fairest man in the world, the bet lawyer in the world, it has one issue in terms of competence in the investigation. How do you respond to that?

PITT: I respond in several ways.

First, people have to recall that my first 10 years as a lawyer I spent at the SEC. I was general counsel of the SEC where I developed a reputation for being a very zealous regulator and enforcer of the law and, during my time, sued every major accounting firm.

In private practice, I always operated with respect to the public interest as well as for clients. The reason I was a successful lawyer is because I always helped my clients understand what the right thing to do was, not what the expedient thing to do was.

The third thing I'd say is very simply this: I know the entire securities industry, the financial accounting industry. I am fully up to speed. If having this experience in some way made it impossible for somebody to serve, we'd get somebody who, I think, as Senator Gramm once said, just came off the turnip truck to be head of the SEC, and that person wouldn't be in a position to do some of the far-ranging things that we have been doing.

VAN SUSTEREN: What strikes me is that you said you don't intend to go into the practice law...

PITT: Right.

VAN SUSTEREN: ... because, obviously, one of the things that we worry about here is revolving doors, is -- you know, is that you go back out and you represent accounting firms after you leave. How do we know, and why don't you want to go back to the practice of law?

PITT: Well, I practiced law for 33 years. I wanted to go into -- back into the government to serve the public. I wanted to do some good based on everything that I had learned about the system, and, fortunately the president gave me that opportunity, and I want to make certain that the people get full value from me.

VAN SUSTEREN: And when you say practice of law, do you not intend -- I mean, I realize that you're chairman, you intend to do that job well now, but what about advising companies in some informal capacity? I mean, how -- you know, is -- are you not going to go back out and do that after you leave the SEC?

PITT: My...

VAN SUSTEREN: You're done? Finished?

PITT: Well, my wife says I cannot retire. She said she married me for better or for worse but not for lunch.


PITT: But -- so I will eventually want to work for a living, but I've got five years left on my term. At the end of that period, I'm going to look around and see what I'll do, but it won't be practicing law, and it won't be something where I have to curry favor with the people I regulate.

VAN SUSTEREN: So not serving on some fancy board and -- for some corporation?

PITT: Well, if I do, it will be serving as an independent director who represents the public, not the management.

VAN SUSTEREN: All right. When you took this job, when you were appointed for this job, it probably in your mind -- at least -- maybe -- correct me if I'm wrong -- was a lot different than it's turned out to be. Is that a fair statement?

PITT: I think it may be a fair understatement, but, yes, it's fair.

VAN SUSTEREN: All right. What do you expect you were getting yourself into? And what did you get yourself into?

PITT: Well, I -- I suspected that we had a system that needed serious repair.

The securities laws were enacted, most of them, almost 70 years ago, and they haven't kept pace with technology. They haven't kept pace with investors' needs. And so I thought we needed to reform the system.

What I didn't expect was to get hit with a series of crises. The first thing that happened within days of my actually commencing work was the 911 terrorist attack with all the markets going down, and what we had to do was find a way to rebuild the infrastructure, get the markets back up, and make sure that the investing public had confidence that the markets would go up, stay up, and would be at least every bit as good as they were. We did that successfully.

Part of the reason is because everybody was trying to cooperate and not take advantage of the situation. But, since then, we've been hit by Enron, we've been hit by Andersen, we've been hit by WorldCom, and many, many more in between.

I basically think that we have to resolve the problems in the system. We have to find solutions for the investing public so that they can have confidence they can put their money in public companies and know that what they're being told is the honest, accurate truth.

VAN SUSTEREN: Well, you know, that's sort of interesting because that has to do with sort of the competency of the economy and making sure the United States runs well. But I think a lot of people want blood.  I think people want blood for what's happened, you know, in terms of are you going to be as rigorous enforcement as well in going after these people?

PITT: Well, I think that -- whether or not people want blood, I think it is absolutely outrageous when people who've worked their entire lives and put together a little nest egg see it wiped out and a senior officer of the company walks out with $30 million or $60 million. It makes my blood boil, and we are going after those people. We will not tolerate the abuse of the American investing public.

VAN SUSTEREN: Harvey Pitt, thank you very much for joining us. Appreciate it.

PITT: Thank you.


JOHN GIBSON: Makes his blood boil. Security and Exchange Commission Chair Harvey Pitt.

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