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The Honolulu Advertiser
Posted on: Friday, November 1, 2002

SEC new oversight chief under fire

By Neil Roland
Bloomberg News Service

WASHINGTON — The Securities and Exchange Commission ordered a probe of William Webster's selection as head of a new accounting oversight board after chairman Harvey Pitt failed to tell fellow commissioners that Webster headed the audit committee of a company sued for fraud.

William Webster speaks to reporters at the Securities and Exchange Commission in Washington, with SEC Chairman Harvey Pitt at left. The SEC named Webster, a former FBI and CIA chief, to head a new board overseeing the scandal-plagued accounting industry.

Associated Press

Webster told Pitt about the allegations against U.S. Technologies Inc. "shortly" before Pitt and two Republicans on the SEC elected the former FBI director by a 3-2 vote, the New York Times reported yesterday. Pitt requested an investigation after the article's publication.

The review casts doubt over the future of Pitt, Webster and the Public Company Accounting Oversight Board, created in response to the collapse of Enron Corp. and WorldCom Inc.

Pitt, whose ties to the accounting industry have drawn criticism since his appointment by President Bush in August 2001, chose Webster over Democratic objections. Yesterday's revelations fueled calls for Pitt to go.

"The president should finally begin to restore investor confidence by appointing an SEC chairman devoted to the public interest, not the accounting industry," said House Minority Leader Richard Gephardt, a Missouri Democrat. Pitt "is not behaving in a trustworthy manner."

Neither Pitt nor Webster returned calls to their Washington offices. The SEC staff was informed of Webster's work at U.S. Technologies, and "the commission staff identified nothing of concern after reviewing the situation," said Christi Harlan, an SEC spokeswoman.

The SEC's inspector general, Walter Stachnik, who is in charge of investigating Webster's selection, said he didn't know how long that probe would take and planned to stay independent of the influence of Pitt or the other commissioners.

Webster, a former federal judge and director of the Central Intelligence Agency and the Federal Bureau of Investigation, headed a three-member audit committee at U.S. Technologies, a company delisted from the Nasdaq Stock Market in 1996 whose shares now trade for less than a penny a share. Among the company's activities was using prisoners to perform "labor-intensive work" for Fortune 1000 companies, according to the company's Web site.

Webster's audit committee voted in 2001 to dismiss U.S. Technologies' outside auditors, BDO Seidman LLP, after they raised concerns about the company's internal controls. In a Sept. 6 letter to the SEC, BDO cited the company's "lack of an experienced CFO, deficiencies in recording material transactions" and the failure to organize and retain documents.

Webster's audit committee fired BDO Seidman on Aug. 16, 2001, and Webster left the company's board in July. He said he had been told the company no longer could provide him insurance against claims by investors, the Times said. The company did hire a more experienced CFO, Webster told the Times.

U.S. Technologies and its chief executive, C. Gregory Earls, are facing lawsuits from investors who say they were defrauded of millions of dollars. Earls has been accused of using investor money for his own purposes, including refurbishing a personal home and to make personal investments, according to a complaint filed against him in Superior Court in Washington in May 2001.