The SEC’s New Pit Bull: But Religious Right’ Want Another Chairman

Harvey L. Pitt, the Bush administration's designated chairman of the Securities and Exchange Commission, once represented one of Wall Street's most notorious insider-trading violators, Ivan F. Boesky. Known as a shrewd negotiator, he managed to win a reduced sentence for Boesky in exchange for his testimony against co-conspirator Michael Milken.

Pitt, 56, the Washington-based managing partner at the blue-chip, law firm of Fried, Frank, Harris, Shriver & Jacobson, has a distinguished record in representing many of the entities that he will regulate. He successfully defended the New York Stock Exchange in the SEC's investigation of personal trading practices by the exchange's floor brokers. The SEC ordered no sanctions against the Big Board even though the agency had punished other self-regulatory organizations for similar improprieties.

A Republican, Pitt is no stranger to the SEC. He worked there for ten years and was the agency's general counsel under President Jimmy Carter. Pitt also has an avid interest in the SEC's history. He is president and a founding trustee of the SEC Historical Society.

The SEC's top post pays $133,700 a year. This is about what a first year associate earns at Pitt's law firm and is far less than the roughly $3 million he earned last year.

Pitt declined to be interviewed for this article. However, he made no bones about his view of SEC rulemaking at his confirmation hearings before the Senate Banking Committee.

"Our securities laws are, in the main, nearly 70 years old, and reflect a time, and a state of technology, light years away from what we now confront daily," he told the committee. "Commission rules are rapidly becoming the securities equivalent of the Internal Revenue Code, making it difficult for those obliged to comply with the rules to understand their obligations, and making it impossible for those who benefit from those rules to understand the rights they have and how to enforce them."

Pitt is regarded as one of the most experienced and knowledgeable securities experts in the U.S. "The only issue is whether he can make a successful transition from extremely successful client advocate to advocate for the public interest," said Harvey J. Goldschmid, a former general counsel of the SEC in the Clinton administration and professor of securities and corporate law at Columbia University's School of Law.

Richard Roberts, a former SEC commissioner in President George Bush Sr.'s administration and a partner at the Washington law firm of Thelen Reid & Priest, believes that Pitt will be an independent voice at the SEC and that his past clients will not shape his opinions.

"Harvey is an independent guy," he said. "I don't believe the positions that an individual takes in private practice necessarily reflect the positions that he or she will take in government."

While some Wall Street pros and former SEC officials are cheering Pitt's nomination, there is one group that has some reservations about his appointment.

X-Rated Sites

Surprisingly, most of these people, so-called religious conservatives, voted for President George W. Bush. Apparently, they are angered over the legal work that Pitt performed in 1999 on behalf of New Frontier Media, a Boulder, Colo.-based online distributor of sexually explicit videos and X-rated Web sites, such as "Teen Sex" and "Cafe Flesh."

According to an SEC filing, Pitt helped the company keep its listing on Nasdaq.

The Traditional Values Coalition in Anaheim, Ca., an inter-denominational public policy organization comprising some 43,000 member churches, sent a letter earlier this year to President Bush urging him to withdraw Pitt as his SEC nominee.

"A man who does legal work for a major purveyor of pornography does not seem to be the kind of person you would want to head up the SEC," wrote the Rev. Louis Sheldon, the coalition's chairman. "I hope you will withdraw his name as a candidate for this position."

Another religious conservative who is dissatisfied with Bush's selection is former Republican presidential candidate Gary Bauer and now president of American Values, a Shirlington, Va.-based conservative policy think tank.

"Surely there are people capable of doing an excellent job in the field of securities regulations who don't have the baggage of having a client whose activities are the exact opposite of the millions of traditional voters who elected George Bush president," he said.

Many legal experts and former SEC officials think Pitt is uniquely qualified to oversee the agency. They also believe that Pitt will probably be far from an activist chairman like his predecessor, Arthur Levitt Jr., who ruffled the feathers of many pros. (Laura Unger was named acting chairwoman soon after his resignation.)

Pitt has pledged to support the SEC's current review of Regulation Fair Disclosure. He will push for a review of other SEC regulations "to be certain they are sound, reasonable and cost-effective."

Under Levitt's regime, regulations and changes deemed by traders as highly meddlesome were enacted. These included the order handling rules, decimalization, and the order execution disclosure rules.

Joel Seligman, dean of the Washington University School of Law in St. Louis, Mo., and an expert on securities law, said Pitt is as well prepared as any chairman since Manny Cohen to head up the agency. Cohen, who was chairman of the SEC during the Johnson administration, worked for the SEC for some 20 years before he assumed the top post.

"There is a tremendous advantage to having someone who actually knows the laws and knows how they operate before he or she arrives," Seligman said.

Seligman pointed out that Pitt will definitely have different policy preferences than his predecessor. "Pitt, for example, was less excited about the focus that Arthur Levitt brought to the issue of accountants independence," he said.

Pitt, whose clients have included the five big accounting firms, said in an interview last year that the SEC was putting too much emphasis on appearances. "The key is to have intelligent rules," he said.

Market Structure

Market structure is apparently what gets Pitt's juices flowing. While he was at the SEC in the 1970s he prepared an exhaustive analysis on market structure. "Securities market structure has been a great deal of his focus over the last several years," said former SEC commissioner Roberts. "I think he will delve into that quite strongly."

Last year Pitt drafted a "white paper" in favor of a central limit order book, or CLOB, on behalf of Morgan Stanley Dean Witter, Merrill Lynch & Co., and Goldman Sachs Group Inc. The report was submitted to the SEC for review and comment.

The 29-page proposal was strongly opposed by the NYSE's Chairman Richard Grasso and Federal Reserve Board Chairman Alan Greenspan. Charles Schwab Corp., the nation's number one discount broker dealer, also disagreed with the creation of a centralized, electronic order system. Schwab execs argued that a central limit order book would discourage market innovation.

"The CLOB may not have been too well received," said Seligman of Washington University School of Law, "but it was a live issue and Pitt was able to frame it very thoughtfully."

Pitt will head up a relatively small federal agency that has an annual budget of $423 million and is staffed with about 2,900 employees. He will undoubtedly be dealing with a host of challenging issues, including market structure, global trading, electronic trading systems, and Nasdaq's transition to becoming a for-profit exchange.

Another major issue that Pitt will be facing is the large proportion of highly-qualified SEC staff members who are leaving for more lucrative salaries in private practice.

"One of his first priorities on Capitol Hill ought to be to try to get the pay parity provision that has been endorsed and sought by Arthur Levitt and acting chairwoman Laura Unger," former SEC general counsel Harvey J. Goldschmid suggested.

Although Pitt has represented some of Wall Street's most powerful players, it is hard to predict exactly what direction he will follow. Arthur Levitt worked on Wall Street for many years and once was chairman of the American Stock Exchange. As the SEC's top watchdog, he was hardly a good friend of his former colleagues.

Then there is Joseph P. Kennedy, Sr., who became the first chairman of the SEC in 1934. Kennedy made a fortune trading stocks during the boom and bust of the 1920s. President Franklin Roosevelt said he chose Kennedy because he knew better than anyone else about how to read and influence the stock market.

The Street is hopeful that Pitt will be an ally. The Securities Industry Association, for one, is confident that he will be receptive. "Harvey Pitt is an excellent choice to head the world's preeminent securities regulator," the SIA's president, Marc E. Lackritz, said in a recent statement. "In his successful career in the public and private sectors, he has viewed the markets from the perspective of a regulator, investor, and the industry."

To Ira L. Sorkin, formerly head of the SEC's New York regional office during the 1980s insider-trading scandals and now a partner at the New York law firm of Squadron Ellenoff Plesent & Sheinfeld, the SEC's designated chairman is only one part of the agency.

"The chairman sets the agenda, but he is only one vote. Until there is a full complement of commissioners it's too early to tell what the [Bush] administration expects of the SEC," he said.

The SEC has five commissioners. Three of the posts are still vacant.

Unlike President Bush, Pitt does not hail from a privileged background nor did he attend Ivy League universities like Yale and Harvard.

In fact, he was born and raised in the same neighborhood as Arthur Levitt Jr. – the Crown Heights section of Brooklyn, N.Y. Pitt attended the elite Stuyvesant High School, a New York City public high school. He earned his undergraduate degree from Brooklyn College and his law degree from St. John's University.

Besides having a reputation as one of the nation's most knowledgeable securities lawyers, Pitt is also known for his tireless, work schedule. He often logs about 70 hours a week. In addition to practicing law, Pitt frequently teaches advanced courses on securities law at professional meetings. He also co-authored a seven-volume treatise, "The Law of Financial Services." He has also authored a myriad of articles on securities law.

Acting SEC Chairwoman Laura Unger recently quipped that the SEC will soon be known as the agency that never sleeps.

Family Man

Pitt, who is married and is the father of four children, has said that in recent years he has slowed down his busy schedule so that he can spend more time with his family. He seldom spends time at the office on the weekends and he volunteers at his children's school.

"What's most important to me is that the children are happy, that they have the right set of values, and the right tools for themselves," he told Business Week in an interview a few years ago.

In the end, the crucial question hanging over Pitt will probably revolve around his ability to impartially police the industry that he once represented before the SEC.

Harvey L. Pitt Resume

Born: February 28, 1945; Brooklyn, New York

Current Position

Securities lawyer and managing partner, Fried Frank Harris Shriver &

Jacobson, Washington, D.C. Joined the firm in 1978.

Career Highlights

* General Counsel of the Securities and Exchange Commission (1975-78)

* Executive Assistant to SEC Chairman Ray Garrett, Jr. (1973-75)

* Counsel to the SEC's Division of Market Regulation (1972-73)

* Editor of the SEC's Institutional Investor Report; Special Counsel of the Office of the General Counsel

of the SEC (1971-72)


St. John's University Law School, (J.D., 1968)

Brooklyn College, (B.A., 1965)


He and his wife, Saree Ruffin, have two children; he also has two children from his previous marriage.

Source: Fried, Frank, Harris, Shriver & Jacobson