WASHINGTON -- The government's securities watchdog catches a high-flying company reporting losses as gains. Investors are devastated, but the CEO refuses to admit wrongdoing and hires the best securities lawyer in the business -- known to friends and rivals as a ''pit bull'' -- and gets off with a fine.
The story is soooo 2002, right?
Wrong. MicroStrategy Inc. was caught cooking the books two years ago, and CEO Michael Saylor's ''pit bull'' was Harvey Pitt.
Who, nowadays, is the watchdog.
MicroStrategy, Merrill-Lynch, Arthur Anderson, KPMG -- Pitt's old client list reads like a rogue's gallery of the corporations accused of driving the economy south. Critics in Congress -- including a few Republicans -- are wondering whether it's a resume fit for the chairman of the Securities and Exchange Commission.
''It would be better for everyone if Mr. Pitt stepped down,'' Sen. Joseph Lieberman, D-Conn., said over the weekend, to give President Bush ''the opportunity to appoint somebody totally independent.''
MicroStrategy -- a marketing analysis software manufacturer fined $11 million to settle fraud allegations -- was not the only Pitt client to classify red column entries as black.
In 2000, America Online paid a $3.5 million fine for counting the computer disks it mass mails as assets -- based on projected earnings -- instead of an advertising cost.
And a 1990 SEC memo shows that Pitt persuaded the watchdog to allow Arthur Anderson to continue its ''indirect'' business consultancy with a client it was otherwise auditing -- the same pretzel-like arrangement that eventually bedeviled the accounting agency's relationship with Enron Corp., the failed energy trader. (The 1990 memo does not name the Andersen client.)
Some critics have gone as far back as the 1980s to associate Pitt with the rich and infamous, noting that he made his name defending insider trading kingpins like Ivan Boesky.
Pitt says defending unsavory clients is par for the legal course.
''This guilt by occupation is really a needless diversion,'' said Pitt, who has strictly followed SEC rules that require commissioners to remove themselves from adjudicating former clients for their first year on the job.
Still, he has been criticized for recent meetings with former client KPMG, an accounting firm whose audits of Xerox Corp. are being investigated by the SEC. He has also met with the CEO of Xerox.
In Pitt's defense, SEC officials note that after meeting with Pitt, Xerox agreed to pay a stiff $10 million civil fine to settle the allegations -- more than Pitt's subordinates at the SEC had recommended.
Such private meetings are Pitt's style, his friends say, especially when he is in ''pit bull'' mode: He doesn't like humiliating opponents by taking his tough talk public.
When he was a partner at the high-powered Fried Frank Harris Shriver & Jacobson law firm, Pitt told his staff to show their opponents respect, according to his former associate, Karl Groskaufmanis.
''I never saw him being pompous or arrogant to someone just barely out of law school,'' Groskaufmanis said.
Not all critics hold Pitt's past against him. David Yellen, dean of Hofstra University Law School in Hempstead, N.Y., and a Pitt critic, said forcing him out because of past clients is a precedent that would make filling the job nearly impossible.
''If you want to bring in someone with a breadth of experience, you want someone who has been in private practice,'' said Yellen. ''And any private attorney is going to represent people who have done questionable things.''
Arthur Levitt, the last SEC boss now canonized by Democrats as the anti-Pitt because of his tough regulatory policies, is also riled by the tactic.
''The fact that he represented the accounting profession does not disqualify him in any sense from being able to deal with those issues, any more than the fact that I chaired the American Stock Exchange disqualified me from dealing with market structure issues,'' Levitt said.
More troubling than his former clients, his critics say, is the laissez-faire philosophy he evinced in defending them -- and that he would not abandon it when he assumed the SEC job. They contrast Pitt with Levitt, who about-faced when he got the SEC job and turned tough on his former stock exchange colleagues.
But Pitt has announced tougher regulations, including requiring clearer and earlier debt statements by companies in trouble.
That shows his commitment to an agency friends say he loves -- he started his career at the SEC in the 1970s, and was its youngest general counsel.
Even when he was later defending its targets, he was something of an SEC geek, founding its historical society. He reduced charges against Boesky by getting him to lead investigators to much bigger fish, including Michael Milken.
David Ruder, who chaired the SEC from 1987-89, says Pitt is aggressive in pursuing wrongdoers, but his professorial style has kept him from claiming credit where it is due.
''He could have launched a more vigorous, defensive campaign,'' he said. ''Take the list (of new rules) and put it out there!'' Instead, they appear on the SEC Web site, linked under the bland rubric ''Regulatory Actions.''
Some critics have shifted gears in recent days, suggesting that Pitt is less the problem than the administration that sets his policy.
''It's the atmosphere that has been created by the president, by the Republicans over the years,'' Rep. Charles Rangel, D-N.Y. said over the weekend. ''You can get rid of Harvey Pitt tomorrow, and you're still going to have the problem.''
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