Pitt now seems to be a political cave-in. The Webster appointment is suddenly the subject of three separate investigations one of them initiated by Pitt. He has become one of President Bush's biggest liabilities. His performance is harming the Administration's efforts to restore confidence in the stock market and the economy, and the famously loyal President is under pressure from his staff to write Pitt off and start afresh. White House chief of staff Andrew Card was particularly incensed at being left out of the loop: He had personally recruited Webster for the oversight-board job. Although a White House spokesman publicly praised Pitt, advisers close to the President hinted that he is a marked man. "We're hanging with him for now," said one.
Pitt may not be the only casualty. With the economy stalled and the Administration under pressure to fix it, White House officials talk openly about the likelihood that the President will jettison either his foot-in-mouth Treasury Secretary, Paul O'Neill, or his equally gaffe-prone chief economic adviser, Larry Lindsey. Bush aides know that bringing in new blood won't improve the economy anytime soon, but the Administration can't afford to be passive.
By Halloween, when the New York Times broke the Webster story, Democrats were baying for blood. Maryland's Paul Sarbanes, chairman of the Senate Banking Committee, called for Pitt's resignation. Things got worse for Pitt when Richard Shelby of Alabama, who will be the top Republican on the committee overseeing high finance, joined the clamor for hearings. "It's deeply troubling that with all the emphasis on transparency and the need to restore faith in the markets, Pitt would fail to disclose something I thought was material to the selection process," he told TIME. "Maybe it wasn't the best judgment."
When President Bush appointed Pitt, 57, chairman 15 months ago, he wanted a low-key friend of the financial industry to replace Arthur Levitt, who had been a ferocious advocate for small shareholders. But Pitt's philosophy of regulating through persuasion and consensus he promised a "kinder and gentler" SEC never had a chance in the crisis environment that developed within months. First came the collapse of Enron, then the failure of Arthur Andersen and finally the flap over stock-analyst conflicts of interest.
The SEC went into overdrive, but Pitt seemed to stall. He had to recuse himself in his first year from cases that involved former clients when he was a private lawyer. Last April, he met with Eugene O'Kelly, head of accounting firm KPMG, a former client, then under the SEC's microscope. Pitt and O'Kelly initially offered conflicting accounts of what was discussed. O'Kelly first claimed he had discussed KPMG's troubles directly with Pitt, but later changed his story. Then Pitt ticked off the White House by quietly lobbying Congress to elevate his job to Cabinet level and give him a nice raise.
Webster's selection as chief of the SEC's new accounting cops was controversial from the start. A bitterly divided commission approved Webster, 78, two weeks ago by a 3-to-2 vote after Pitt had cooled on an earlier choice, John Biggs, head of TIAA-Cref, a successful New York pension fund. Biggs' "sin" seems to have been his reformist zeal. At TIAA-Cref he championed changes in accounting practices and corporate governance. Washington doesn't always warm up to reformers who actually reform, and Biggs' candidacy ran into opposition from the accounting industry and its chief congressional ally, Republican Representative Michael Oxley, chairman of the Financial Services Committee.
Oxley lobbied Pitt to dump Biggs, arguing that he was too aggressive and unpopular with the industry, congressional sources tell TIME. Oxley's spokeswoman said only that he talked with Pitt frequently and wanted a "moderate person to lead the board, someone able to unite the industry and reformers." SEC commissioner Paul Atkins, a Republican, backed Webster. "I kept beating the drums on Bill Webster from Day One," he says. "Finally, the chairman came around to that way of thinking." Atkins says he favored Webster because as the nation's former top cop he could command respect from business interests.