Pitt likely to swing pendulum on SEC’s priorities

Financial executives expect Washington lawyer Harvey Pitt to make streamlining securities markets a top priority if he becomes the next chairman of the Securities and Exchange Commission.

But Mr. Pitt, who receives high praise as a knowledgeable securities lawyer with a broad range of experience in the industry, government and academia, will face a host of other issues as well.

The White House announced Thursday that President Bush intends to pick Mr. Pitt for the job, but a formal announcement awaits the outcome of a routine FBI background check. Mr. Pitt also must be confirmed by the Senate.

A partner in the Washington office of the New York law firm Fried Frank Harris Shriver & Jacobson since 1978, Mr. Pitt, 56, was general counsel of the SEC from 1975 to 1978. He declined to comment for this article.

He has represented many major financial services clients, including the Securities Industry Association, the Investment Company Institute, the American Institute of Certified Public Accountants, Big Five accounting firms, the American Council of Life Insurers and the New York Stock Exchange.

He also represented Ivan Boesky, the financier who pleaded guilty to insider trading in the 1980s.

Several people who know Mr. Pitt describe him as a lawyer’s lawyer.

Barry Barbash, a former director of the SEC’s division of investment management who is now a partner in the Washington office of New York law firm Shearman & Sterling, describes him as a “hands-on, detail-oriented person who sweats details to the nth degree. He has a rat trap of a mind for details.”

notable intelligence

Mr. Barbash, a student of Mr. Pitt’s at Georgetown University Law school, calls him “one of the smartest people I ever knew.”

Mr. Pitt has been cited as a frequent critic of the SEC. That may not be fair, some say.

One former commissioner says Mr. Pitt’s criticism that SEC enforcement is sometimes used to set policy is a view widely shared in the industry.

Even Barbara Roper, director of investment protection for the Consumer Federation of America in Washington, acknowledges that Mr. Pitt’s credentials are “impeccable.”

But she is less than enthusiastic about his successful bid to get the Private Securities Litigation Reform Act of 1995 enacted. The law raised legal standards for filing class actions about securities.

Mr. Pitt also wrote a controversial white paper in 2000 for Merrill Lynch & Co. Inc., Goldman Sachs Group Inc. and Morgan Stanley Dean Witter & Co.

The paper proposed creating a centralized limit-order book that would handle all stock transactions, allocating the best prices to orders based on when they are placed.

That proposal, which would have given big Wall Street firms control of the market, was not well received by the industry, especially electronic networks.

But Ms. Roper is optimistic about Mr. Pitt’s ability to deal with complicated market-structure issues.

“There’s a lot that they could do to address fragmentation in the markets,” she says. “He brings extensive expertise in that area and an apparent interest in the topic.”

One area of securities law in which Mr. Pitt has not been heavily involved is investment management.

“Once again, we’re going to have someone whose principal expertise is not in the investment management area, which is unfortunate,” says Mercer Bullard, chief executive officer of Fund Democracy, a fund shareholder advocacy organization in Chevy Chase, Md.

While several industry officials expect Mr. Pitt to re-examine the SEC’s controversial regulation requiring companies to disclose all material information on an equal basis to everyone, they may be disappointed.

Carl Wilkerson, senior counsel to the American Council of Life Insurers in Washington, worked with Mr. Pitt at the SEC and in private practice.

Five years ago, Mr. Pitt gave the council advice on setting up the Insurance Marketplace Standards Association, an independent group that sets standards of conduct for the life insurance marketplace.

Several articles by Mr. Pitt listed on Fried Frank’s website caution against the perils of selective disclosure, Mr. Wilkerson notes. “He’s always been an advocate of `do more than you have to,”‘ he says.

But Mr. Wilkerson thinks that Mr. Pitt may revisit the SEC’s controversial auditor-independence rules.

A former SEC division head predicts that Mr. Pitt, an intellectual perfectionist, will be a tough taskmaster. “He is going to stir that place up,” the observer says. “He’s going to either drive them crazy or drive them to perform at a wonderful level.”