WASHINGTON, July 3 (UPI) -- To Harvey Pitt, securities lawyer extraordinaire, the WorldCom Inc. debacle must convince him that everything he held dear and worked for; the Wall Street that he learned to master, has turned on him.
WorldCom, a worldwide communication company with 60,000 employees, major operator of the Internet and provider of government communications, announced late last month it disguised $3.8 billion in debt and claimed $1 billion in profits.
By Wednesday this week, as the stock market dropped, President George W. Bush found himself defending his administration's regulation of business, and eyeing polls that showed approval for his handling of the economy was slipping. The president used his Saturday radio address to defend his administration and mentioned it in several other forums, but Harvey Pitt has been noticeably absent from the defense.
When President Bush nominated him as commissioner of the Securities and Exchange Commission, Pitt, now 50, was at the apogee of his career. He had a client list of 112 firms and individuals that read like Fortune's 500 and was almost as long and if he was not the most sought after securities' counsel in America, he was in the top four.
It had taken incredible effort for a Brooklyn boy to get there. When he joined Friend Frank Harris Shriver and Jacobson two decades ago, his partners chafed under his driven work style. The younger Pitt kept two secretaries, one who worked days and the other evenings so he could spend 16 hours in the office.
"His trademark was the way he flew to the home office of a client in trouble with the SEC. He'd sit down with the top men," said one admiring colleague, "and tell them that he would never leave their side during this ordeal. That might be the last time they'd ever see him."
But Pitt delivered.
"He was," said this prominent lawyer "a terrific negotiator."
Bush wanted him to replace Arthur Levitt, who had annoyed the business community by sticking up for the average investor and particularly rankled the then "Big Five" accounting firms for his proposal that they should not be able to sell a client business consulting services if they were also auditing the firm's financial statements. Pitt led the attack on Levitt.
Pitt took office with a statement he now probably rues, saying he would run "a kinder and gentler" SEC under his leadership.
Almost immediately everything went wrong. The list of problems are astounding:
-- Houston energy giant Enron Corp. collapsed discovered to have hidden millions of dollars in debt from investors and employees by a series of accounting manipulations.
-- The accounting firm that approved Enron's tricks was Arthur Andersen LLP, former Pitt client and one of the key firms behind Pitt's lobbying efforts to stop Levitt's proposal.
-- Andersen, since convicted by a federal jury of destroying Enron records, was doing just what Levitt decried: in addition to auditing it become a major influence on Enron's entire business from supplying executives to making investment decisions.
-- Within weeks of Enron, Tyco International Ltd. was accused of falsifying merger information and Qwest Communications, Martha Stewart, ImClone and Dynegy all have been accused of some sort of business violation.
-- Far more troubling for Pitt, that most of these involve auditors approving erroneous financial statements for investors.
From the moment Bush appointed him, Pitt's detractors said he would be soft on Wall Street and big business. Certainly the collapses where stockholders have lost billions and thousands of jobs, have done little to alter that perception.
When in April, Pitt chose to meet with Eugene O'Kelly who had just become chairman of KMPG, it was quickly noted that this not only a former client, but KMPG was under scrutiny in an investigation of whether Xerox understated its earnings by $3 billion. The investigation disclosed last week that Xerox actually had understated its debt by over $6 billion.
As the months went forward, Common Cause, the liberal Washington study group, called the meeting with O'Kelly, "at best ... poor judgment and disdain for the public trust."
Now, as WorldCom pulls corporate crime from the business pages to the front pages, many in Washington agree the scrutiny is on Pitt.
Common Cause President Scott Harschbarger told United Press International he believes that Pitt is in a testing period, but if he takes the right steps, he can persuade the public he is able to protect them.
"He has to step up or step out," said Harschbarger.