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Forum| Posted: 02/05/2003 | Bush's SEC Nominee Promises to Enforce Anti-Fraud Law, Bring Corporate Wrongdoers to Justice
| WASHINGTON (AP) - President Bush's nominee to head the Securities and Exchange Commission, Wall Street investment banker William H. Donaldson, said Wednesday he would aggressively enforce corporate accountability rules and prosecute financial lawbreakers to help rebuild investor confidence shattered by last year's scandals.
His highest priority would be selecting a new chairman of the board overseeing the accounting industry, Donaldson told the Senate Banking Committee at his confirmation hearing. The current SEC chairman, Harvey Pitt, resigned under fire in November in a flap over his selection of former FBI Director William Webster to head the accounting board. Webster also resigned.
Under questioning by senators, Donaldson also defended his record as former chairman of the New York Stock Exchange but softened his earlier opposition to a rule prohibiting companies from revealing information to financial insiders ahead of the public.
Pledging to work to restore confidence, Donaldson said: "Just as the war on terrorism cannot be won overnight, neither can investor confidence be completely restored so quickly," Donaldson said. "Corporate America, Wall Street and their professional stewards - lawyers, accountants, corporate and financial managers and financial regulators - still have much work to do."
Donaldson, a Bush family friend, was designated - with newly installed Treasury Secretary John Snow - a member of the president's revamped economic team.
Donaldson received a friendly reception from senators of both parties on the panel, and he is expected to be confirmed by the full Senate.
Sen. Charles Schumer, D-N.Y., called Donaldson "a straight shooter" whose background qualifies him for the job of leading a now "leaderless and rudderless" SEC.
If that happens, Donaldson said, "I will demand accountability from all responsible parties. I will aggressively enforce civil penalties and work cooperatively with state and federal law enforcement agencies ... to bring those who break the law to justice."
The SEC, straining under a heavy load of investigations of corporate fraud and accounting deception, has been led since early November by lame-duck chairman Pitt.
This is the landscape confronting Donaldson: Once-mighty accounting firm Arthur Andersen is a smoldering ruin after an obstruction of justice conviction; its longtime client Enron Corp. led a parade of corporate bankruptcies, scandals and handcuffed CEOs; retirement savings have dissolved and the stock market has plunged.
Bush nominated Donaldson for the SEC post in December. Legislation enacted last summer expanded the SEC's powers to prosecute fraud and ordered the agency to issue new rules for companies, executives and accountants.
In 2001, Donaldson denounced as "terrible" a year-old SEC rule prohibiting companies from revealing financial results and other information to stock analysts and other Wall Street insiders ahead of the public - a long-standing practice.
He called the Regulation Fair Disclosure of 2000 - pushed by small-investor advocates and then-SEC Chairman Arthur Levitt - "crazy in terms of what it does to the free flow of information." Like other critics, Donaldson contended it could make company executives afraid to say anything.
Asked about the issue at Wednesday's hearing, Donaldson acknowledged his earlier stance but said he believed the rule was now "working better." He promised to monitor its impact as SEC chairman.
Sen. Paul Sarbanes of Maryland, the panel's senior Democrat, asked Donaldson about his earlier argument, as NYSE chairman, that accounting standards should be bent to attract foreign companies to the stock exchange.
Donaldson explained his position and warned that now, with the SEC imposing new rules on companies which also apply to foreign corporations whose stock trades on U.S. exchanges, "If we have such a high fence around, ... the market will move from the United States to other countries."
Democrats on the Banking Committee also have examined Donaldson's leadership of the NYSE in the early 1990s, when floor brokers made millions of dollars in illegal trades. The trading fraud scandal later brought the first-ever criminal prosecutions of floor brokers at the exchange.
"There's been a lot of misunderstanding," Donaldson testified, referring to allegations that he and other senior NYSE officials quietly approved of letting brokers who worked on the exchange floor trade and share in profits with private customers. "Enforcement and protection of investors was always my top priority."
Enforcement actions taken by the exchange in policing itself increased 80 percent during his tenure, Donaldson said.
A federal judge in 1999 accused the stock exchange of "downright anorexic" enforcement of a prohibition against floor brokers trading accounts in which they hold an interest. The judge admonished the NYSE for failing to enforce securities laws and its own rules meant to prevent brokers from getting an unfair advantage over other investors.
Known for a colorful candor, the 71-year-old Donaldson - a founder of Wall Street brokerage Donaldson, Lufkin & Jenrette - recently reported personal assets of between $89 million and $253 million. He was required to report only a range of assets, not specific numbers. He promised to sell his stocks in more than 50 corporations and his interests in partnerships to avoid any potential conflict of interest.
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