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When James Doty was named general counsel of the Securities and Exchange Commission more than a decade ago, Harvey Pitt was the first to call with congratulations. “You realize, you now have the best job in all of Washington � [aside from] the chairman of the SEC,” Pitt later told Doty over lunch. Now Pitt, who served as general counsel of the agency in the 1970s, will get a chance to test his theory. As the U.S. economy wavers, Pitt, 56, prepares to take on the post of SEC chairman, giving up his private practice in the Washington, D.C., office of New York’s Fried, Frank, Harris, Shriver & Jacobson and sacrificing millions of dollars in annual compensation. “Harvey has always known he wanted this job, and it’s not because he wants to be queen for a day,” says Doty, now managing partner in the D.C. office of Houston’s Baker Botts. “Harvey loves the law, he loves the agency, and he has a strong sense that he can improve the condition of the capital markets.” Pitt’s unanimous approval by the Senate Banking Committee last week points to both the ultimately uncontroversial nature of his nomination and the pressure lawmakers feel to have someone directing the SEC at a time of increasing economic uncertainty. The initial two-month delay in securing Pitt’s formal nomination — reportedly caused by a cumbersome background check into Pitt’s 20 years of business relationships, extensive travel, and financial holdings — speaks to another element of Pitt’s nomination. While his qualifications are solid, he nonetheless brings a complex record of client engagements that leaves both advocates and critics searching for clues to how he will balance the often competing interests of industry and investors. Few doubt that Pitt, described by friends and colleagues as “intellectually rigorous,” “hardworking,” and “thoughtful,” will leave his stamp on the securities marketplace. “Harvey is acutely aware of the balance between the legitimate needs of business and the needs of the government,” says Kathryn Oberly, general counsel of Ernst & Young. “He’ll be able to foster an environment at the commission where the agency is working cooperatively with outside constituents like Wall Street, like the accounting industry. “It’s not because Harvey has represented so many of us as clients over the years, but because the way he approaches issues is to be very inclusive,” Oberly adds. At the top of Pitt’s to-do list is a major overhaul of the securities laws to address the dramatic increase in individual investing and the evolution of technology experienced in recent decades. Investor advocates say they are hopeful he will strike an independent path. “He’s taken forceful positions on behalf of his clients over the years, but we don’t know what his personal views are and what he’s likely to pursue in his own name,” says Barbara Roper, director of investor protection for the Consumer Federation of America. SEC GENERAL COUNSEL AT AGE 30 Pitt, a Brooklyn native and graduate of St. John’s University Law School in New York, moved to Washington in 1968 and rose quickly through the ranks of the SEC. From 1973 to 1975, he served as executive assistant to then-Chairman Ray Garrett Jr. At 30, Pitt became the youngest general counsel in the agency’s history. Pitt declined requests for an interview. According to David Ruder, a professor at Northwestern University Law School and SEC chairman from 1987 to 1989, Garrett was a lasting mentor to Pitt. “Becoming executive assistant to Ray Garrett was a very formative experience for Harvey,” Ruder says. “When Pitt’s nomination was announced, I wrote Harvey and said he would serve us all well if he were a chairman in the tradition of Ray Garrett.” In 1978, Pitt joined Fried Frank and quickly built a reputation as a go-to defense lawyer for brokers and corporate executives in trouble with the government. He also built a reputation for being a workaholic, the kind of guy who could be reached at all hours and survive on little sleep. Friends remember Pitt carrying a cell phone the “size of a shoe box” long before the gadgets were commonplace. He is still known to answer e-mails at midnight, although he is said to have tempered his schedule to spend time with his two youngest children. (Pitt also has two adult children from an earlier marriage.) Pitt’s clients over the years have included all of the big names on Wall Street: Bear Stearns, Merrill Lynch, Morgan Stanley, the New York Stock Exchange. But for the attorney dubbed the “Zeus” of the securities bar at his confirmation hearing, Pitt’s record in private practice holds few outright victories. Instead, his modus operandi has been to settle cases. “I don’t think people typically hire Harvey when they want to thumb their nose at the SEC. I don’t think he’s particularly effective at that,” says longtime friend John Olson, a securities lawyer in the D.C. office of Gibson, Dunn & Crutcher. “He’s more likely to be retained by someone who understands the value of reaching accommodation.” In the mid-1980s, Pitt clinched his status as a leader in the securities defense bar with his representation of infamous inside trader Ivan Boesky. Boesky’s crimes might have sent him to prison for more than 30 years, but in top-secret negotiations with the SEC that ultimately led to the prosecution of Michael Milken, Pitt cut a deal that allowed Boesky to spend just two years in prison and maintain much of his fortune. When Ruder stepped in as chairman, the insider trading cases were winding down, and enforcement lawyers briefed him on Pitt’s role. “They compared Harvey’s representation of his clients with those who represented Mike Milken. Lawyers for Mike Milken were exceedingly aggressive, cantankerous, and argumentative in their representation,” Ruder recalls. “Harvey’s representation was not perceived that way. He was willing to find common ground on behalf of his client so that the matter would be solved.” But while Pitt can be accommodating, he’s no pushover, say those who have crossed swords with him over the years. “People see him as a very powerful and wily adversary. You knew when you faced off against Harvey Pitt you had to be prepared,” says a former aide to Chairman Arthur Levitt, Pitt’s predecessor. Baker Bott’s Doty recalls watching Pitt interact with SEC enforcement lawyers shortly after becoming general counsel. “He was like one of those chefs at a Japanese restaurant, handling very sharp knives with complete nimbleness,” Doty says. “The lawyers said what they planned to do, and Harvey immediately rattled off all the steps he would take in response. It was all lighthearted. He never lost that sense of mind play.” Recently, Pitt represented clients fighting Levitt’s two most controversial initiatives: fair disclosure and auditor independence. The fair disclosure rule, commonly known as Reg FD, was enacted in August 2000 to prevent companies from leaking information to analysts before the investing public. The securities industry has attacked the rule as overly broad and chilling to the overall flow of information. The equally contentious auditor independence rule, adopted in November, imposes restrictions on the types of services accounting firms can offer and requires corporations to disclose fees paid to their accountants. Facing major opposition from the Big Five accounting firms, represented by Pitt, the SEC backed off an earlier proposal that would have banned auditors from providing lucrative technology consulting services. Since the announcement of Pitt’s nomination, there has been no shortage of speculation on what position he will take on both issues as chairman. While there is little expectation Pitt will reverse either regulation, he has not closed the door on tinkering around the edges of the rules to answer industry’s complaints. As chairman, Pitt will have the ability to undermine both rules through lack of aggressive enforcement. But Pitt does not seem to seek his legacy in dismantling Levitt’s investor-friendly reforms. Inasmuch as he has set out his agenda, Pitt’s major mission seems to be reshaping the nation’s securities laws to fit the digital age. “This is something he has emphasized repeatedly in every meeting we’ve had,” says a Senate Banking Committee staffer. “He wants to draw upon his vast experiences to accomplish this. He is a man with the intellect and the background to do it.” Modernizing the legal framework governing the capital markets — an ambitious goal akin to the Gramm-Leach-Bliley banking reform of 1999 — is a process likely to sow contention not only between industry and investor advocates but also among the business interests Pitt has often represented. One area where the agency is racing to catch up with the realities of the marketplace and where Pitt will have to grapple with complex issues is the question of electronic communications networks. Known as ECNs, these computerized trading systems match buyers and sellers directly, providing a low-cost trading option. Many in the investment community believe SEC intervention is needed to prevent the proliferation of ECNs from dividing the market into disparate fiefdoms where accurate price information is difficult to gather. No consensus has been reached on a course of action. “Established exchanges want more — consistent, heavy regulation of electronic communications networks. Free-market advocates think the last thing in the world the stodgy old SEC should do is start devising rules for this. Charles Schwab has a different position than Merrill Lynch and Solomon Brothers,” Doty says. “I think it’s very high on his list to get his arms around all the issues and to start mapping out a coherent, intelligent approach,” Doty adds. “Harvey’s challenge will be to reconcile competing private interests in a way that keeps the market evolving and continues encouraging liquidity.” Those urging reform hope Pitt’s solid relationship with industry and widely noted talent for reaching common ground will lead to action. “If he were to take serious steps to address fragmentation in the market, that would be a major accomplishment,” says Roper of the Consumer Federation. “Any time you have very influential groups on opposite sides of an issue, it’s very difficult to make progress.” But Roper adds that Pitt’s seeming willingness to work closely with private interests is also troublesome. “If the SEC is going to be a forceful advocate for investors, sometimes that’s going to involve getting adversarial with industry,” she says. Pitt addressed this concern at his July 19 confirmation hearing. “My only influence will be the public interest,” he said, “and not a single client that I have ever represented.” The list of technical issues demanding Pitt’s attention is seemingly endless: market fragmentation, analyst independence, international auditing standards, functional regulation, decimalization. But Pitt also faces a fundamental, and perhaps equally crucial, challenge inside the agency, which has been plagued with poor morale and high turnover. “The most important legacy he could leave would be to reinvigorate the esprit de corps of the agency,” says Robert Kurucza, a partner in the D.C. office of Morrison & Foerster and a former SEC attorney. Hopes are high that Pitt — a man who colleagues say hasn’t forgotten what it is like to be in the trenches, who shares the spotlight with those around him, who enjoys mentoring young lawyers — is just the person for the job. “I think by virtue of his belief in the commission, people will want to work harder,” says Barry Barbash, former director of the SEC Division of Investment Management. “They’ll feel how much fire there is in him, and that will lift them.”

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