Jewish World Review Nov. 5, 2002 / 30 Mar-Cheshvan, 5763
http://www.jewishworldreview.com | Reform is really rolling now!
We just learned that William Webster, the freshly minted head of the panel created to police the accounting field, was head of the audit committee of U.S. Technologies, a company whose CEO is now being probed for financial fraud.
It turns out that Webster told Securities and Exchange Commission chairman Harvey Pitt all about it, but Pitt didn't think to give a heads-up to the other commissioners before they voted to approve Webster. The White House says it was never told either.
Does Pitt think his colleagues and the public are so stupid that we'd believe Webster's experience overseeing the accounting operations of a company whose CEO is suspected of fraud is somehow unrelated to his nomination to a job where he will serve as a top accounting watchdog? Aren't we trying to create an atmosphere of more disclosure and transparency?
In response, Pitt has asked the SEC's inspector general to examine the selection of Webster. That means Pitt is asking to be investigated himself?
Let me be clear: William Webster is a distinguished American who served his country faithfully and well as head of both the FBI and CIA. No one's suggesting that he's done anything wrong, and he was upfront with Pitt about his role at U.S. Technologies.
Other distinguished Americans, including former Senate Majority Leader George Mitchell, served on the board of U.S. Technologies. But Pitt should never have let the Webster nomination proceed without full disclosure to the SEC, the White House, Congress and the public.
Also this week, Citigroup, the target of investigations by securities regulators for its conflicts of interest and financings of Enron and Worldcom, announced a plan to separate the company's stock research and investment banking into different business units. As though changing the division names and logos will solve the rampant problem of Wall Street firms that have the ability to pump the stocks of companies they hope to win investment banking business from.
Does Citigroup CEO Sandy Weill, himself under fire for possible involvement in the company's decision to raise its rating on AT&T stock, actually think that regulators, Citigroup clients and the public are so stupid that we'd believe this superficial shuffling of the deck will really prevent future abuses?
To top it off, the SEC and New York Attorney General Eliot Spitzer have concocted their own "solution." They want the big Wall Street firms to fund a new billion-dollar research consortium overseen by regulators. In other words, the regulators' answer to the lack of independent research is to turn the function over to the government.
Do Pitt and Spitzer think that investors are so stupid they'll believe this socialized research alternative will restore investor confidence, or is all of this about preserving the status quo?
Do you really want General Motors, Ford and Daimler-Chrysler to subsidize outfits rating the quality of their cars? No question such research would be a valuable sales tool for car dealers, but who would put up with it?
The only research worth investors' time and money is truly independent research. For those who say research can't survive without the support of the huge revenues from investment banking, I'd say you're partially correct. Independent research firms probably won't be able to afford the annual multimillion-dollar salaries that some top Wall Street analysts have been pulling down.
But I sincerely doubt that those analysts should ever have been making that kind of exorbitant money in the first place. And maybe - just maybe - Pitt, Spitzer, Weill and the heads of the other major Wall Street firms should stop treating investors like fools. We may yet be proven a little smarter than you think.
Enjoy this writer's work? Why not sign-up for the daily JWR update. It's free. Just click here.
10/29/02: Earnings estimates offer some hope