Accusations that former SEC Chairman Harvey Pitt concealed information regarding Webster thrust both Pitt and Webster into the national spotlight. Pitt resigned last night following calls for his resignation from Democrats in the House and the Senate. Democrats were also calling for the resignation of Webster according to a press release from House Democratic Leader Richard Gephardt.
Prior to Pitt's late evening resignation, the White House expressed its support for Webster as well as for Pitt. "Judge Webster has a long career and is respected on both sides of the aisle as an individual of integrity," said Claire Buchan, a White House spokeswoman to the Times.
Pitt failed to tell the other four commissioners who voted on Webster's nomination that Webster headed the audit committee at U.S. Technologies, a small publicly traded company that is now facing suits by investors who say they were defrauded of millions of dollars, reported the Times. Last year, during Webster's tenure, the audit committee voted to dismiss BDO Seidman, the firm's outside auditors, in the summer of 2001 after those auditors raised concerns about internal financial controls. BDO Seidman is currently accusing Webster of making "false and misleading statements" last week about what he knew of U.S. Technology's financial problems, according to the Times.
Webster denied the accusation by BDO Seidman which was raised in a federal lawsuit made public on Monday, and he defended his work for U.S. Technologies. However, he stated that he was considering whether to step down from the oversight board.
"I'm not the only one who can do this job," said Webster, a former director of the FBI and the CIA, in an interview with the Times. "If I conclude my ability to serve impedes on the ability of the board to function, I will step aside. This is not a job I sought."
Congressional officials have said they would examine Webster's work not only at U.S. Technologies, but also his role as a director at NextWave Telecom, which is in Chapter 11 bankruptcy proceedings and is currently before the Supreme Court because of charges from the Federal Communications Commission over spectrum licenses worth billions of dollars, according to the Times.
In an interview with the Times, Webster said that he had had informed Pitt about the investor lawsuits before his appointment.
"I told them that people are making accusations," said Webster to the Times of his conversation with Pitt before his appointment. "I said if this is a problem, then maybe we shouldn't go forward. I raised it because I didn't want it to become an issue."
He said Pitt assured him that SEC staff had looked into the issue and it would not pose a problem. However, U.S. Technologies' former outside accounting firm, other audit committee members, company executives and investors told the Times that no one at the SEC contacted them about Webster's role at the company.
This recent controversy raises questions as to how effective Webster can be as the head of such a board, according to Professor of Economics Geoffrey Woglom. "Judge Webster acted honorably in disclosing to Harvey Pitt that he had served on the audit committee of a firm that subsequently ran into financial and accounting problems. Unfortunately, Harvey Pitts' failure to disclose this information to the other SEC Board members casts a cloud of suspicion over Judge Webster," said Woglom. "Given that suspicion, I don't believe Judge Webster could serve vigorously and effectively as the head of the new accounting oversight board."