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SEC chairman Harvey Pitt is in the hot seat. As the Fallout from the Enron Corp./Arthur Andersen LLP fiasco continues, the next entity to get caught up in the storm is the Securities and Exchange Commission. Two recent nominations to the securities agency have raised eyebrows. Critics question the propriety of stocking the SEC with former Big Five accounting industry professionals in the wake of the accounting scandal. Cynthia Glassman, a principal with Ernst & Young since 1997, was nominated to the SEC by President George W. Bush in December, then given a recess appointment on January 22. Bush has also nominated PricewaterhouseCoopers partner and lawyer Paul Atkins, who at press time awaited Senate confirmation. And adding to critics’ charges, agency chairman Harvey Pitt represented all five accounting firms while in private practice for Fried, Frank, Harris, Shriver & Jacobson. If Atkins is confirmed, SEC leadership would comprise three Republican commissioners with Big Five ties, Democrat Isaac Hunt, and one vacancy. To Senator Jon Corzine (D-New Jersey), among others, that adds up to a lot of Big Five influence. “Without judging on the merit of these particular individuals, the senator is concerned about having a concentration of people [serving on the SEC who come] from a given industry,” says Corzine spokesman Darius Goore. “The SEC is the body that regulates the accounting industry, so there is a potential conflict.” BIG FIVE BIAS? In 68 years of SEC history, only one other commissioner, James Needham, has come from a Big Five firm or from one of its predecessors. Needham served from 1969 to 1972. Barbara Roper, director of investor protection with the Consumer Federation of America, worries that as the SEC grapples with revising auditor independence rules, agency leaders will be overly sympathetic to industry concerns. Historically, the Big Five have fiercely resisted proposals for stricter separation of auditing and consulting work. In the Enron case, Arthur Andersen received $52 million in fees from the company in 2000-$25 million for an audit, and the balance for consulting work. “At a time when the accounting industry is at its most serious crisis since the S&L bailout and clearly in need of fundamental reform, having the SEC dominated by industry insiders raises serious questions about their credibility as strong reformers,” says Roper. Glassman declines comment. Atkins did not return a call seeking comment. ODD TIMING The timing of Bush’s actions has also drawn fire. He put forth Atkins’s and Glassman’s nominations on the last day that the Senate was in session in 2001, and gave Glassman a recess appointment the day before Congress reconvened. (He also gave a recess apointment to Hunt, an SEC commissioner whose term had expired.) Although the recess appointment is good for about a year, Senate Banking Committee chairman Paul Sarbanes (D-Maryland) says that he plans to hold confirmation hearings to question both Big Five alums about their accounting industry ties. “We will examine whether they will leave their past connections at the door as they assume their public responsibilities,” says Sarbanes spokesman Jesse Jacobs. Senate Majority Leader Tom Daschle of South Dakota has recommended former SEC general counsel Harvey Goldschmid and Roel Campos, a cofounder and general counsel of El Dorado Communications in Houston for the SEC’s two permanent Democratic spots. (The SEC has a total of five commissioners.) But one Glassman acquaintance, Pamela Martin, director of regulatory relations for the Risk Management Association, calls the concerns over Glassman’s Big Five ties “totally, totally misplaced.” “Her background at Ernst & Young is on the risk management side, working with financial institutions. That’s something that’s really needed at the SEC,” says Martin. “She has practical, hands-on experience and can understand real-life implications of policy changes.”

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