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Andersen ties tangle SEC chief's Enron probe role

America's top markets cop is being hobbled in leading the Securities and Exchange Commission's probe of Enron Corp, by his links to the accounting firm entangled in the deepening scandal over the company's collapse, experts said on Friday.

SEC Chairman Harvey Pitt represented the accounting firm Andersen, which is now under SEC investigation for its auditing of Enron's books, when he was a private attorney.

Pitt has had to step carefully in the Enron probe, sources said. Congressional aides said it was understood on Capitol Hill that he did not testify last month at a congressional committee hearing on Enron because of his ties to Andersen.

Edward Fleischman, a former SEC commissioner, told Reuters: "Harvey, I think, represented each and all of the Big Five auditing firms. That could very well be a reason that he feels it would be inappropriate" to take part in such a hearing.

The SEC refused to detail Pitt's role in the probe, citing a policy of not commenting on such issues. "Chairman Pitt is following the terms of his ethics agreement that was provided to Congress and the government ethics office when he took office," SEC spokesperson Christi Harlan told Reuters.

Pitt, who took over at the SEC in August, worked for Andersen and other accounting firms in battles with the SEC over auditor independence rules.

Andersen was just one of many clients over 20 years that helped him win a reputation as the nation's best securities lawyer, making it virtually certain he would face potential conflicts.

"From the day his nomination was announced, people understood that this was going to happen. So it's not a surprise," said Donald Langevoort, a securities law professor at Georgetown University in Washington, DC.

PITT'S PLEDGE

Last summer, as the Senate was considering his nomination as SEC chairman, Pitt pledged to distance himself for one year from SEC matters involving former clients.

Shortly after his appointment, the Enron affair erupted and Pitt's former client Andersen quickly became involved.

Enron slid in just weeks from Wall Street stardom to making the largest bankruptcy filing in US history on December 2. Its downfall threw thousands out of work and hammered investors.

Questions arose about Enron's accounting practices, financial disclosures and other matters. The Justice Department said this week it was pursuing a criminal probe of Enron. The Labor Department and five congressional committees are also investigating the company, along with the SEC.

Andersen admitted on Thursday its employees had destroyed an unspecified number of documents related to those audits.

SEC probes are carried out by enforcement staff. Commission members, including the chairman, become involved twice -- once to vote on launching a formal investigation, and again at the probe's end on any staff request for enforcement action.

The commission voted in October to authorise a formal probe of Enron. Pitt would normally have had to recuse himself from the vote, but sources said due to a shortage of commissioners, he did vote. He was allowed to do so under a government ethics rules loophole that waives recusal requirements under some circumstances with full disclosure.

The SEC has suffered from a shortage of commissioners for some time. Four of its five seats are technically vacant, but one commissioner has stayed on past her terms' expiration to help and two have been nominated by President George W Bush.

Sources said Pitt was advised in October to distance himself from further aspects of the probe, although some said that could be difficult as the case gets more attention.

Commission members will probably not be faced with another formal vote on the Enron investigation for several months. By that time, when staff asks the commission to vote on an enforcement action, Pitt will have more options, sources said.

He will either be able to recuse himself because more commissioners will be aboard. Or, if the vote takes place after August, his one-year recusal period will have expired.

In the meantime, however, the SEC may suffer by being deprived of Pitt's expertise in handling the biggest case it has encountered since he became chairman.

"He's a very gifted and thoughtful chairman and you want his expertise any time you can get it," said Joel Seligman, dean of Washington University School of Law.

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