In a much-anticipated May 7, 2002, speech, President Bush responded to the lawmakers who demanded new and tough laws by stating , "I call upon the Securities and Exchange Commission to take action." In other words, he was asking Harvey Pitt to take care of it. When Pitt was confirmed as the new SEC chairman on August 1, 2001, he probably had no idea of what he was getting himself into. At the time, almost no one questioned that he was the right man for the job. Even a Democratic senator, Charles Schummer, stated at the confirmation hearings, "His reputation, deservedly so, has achieved ”at least in securities law ”almost godlike proportions . He could well be described as the Zeus of his field."  Indeed, as we have already mentioned, he had worked for the SEC for ten years (1968 “1978), and his latter years there were spent as general counsel. He spent the next 24 years as a Washington, D.C., lawyer representing, on one occasion or another, each of the Big 5 accounting firms and various financial fraud defendants, including Ivan Boesky. As such, and in response to critics who question his loyalties, he knows the workings of the accounting profession ”and of accounting chicanery. In addition, Pitt also responded that he now worked for "the most wonderful client of all ”the American investor."  Thus, he may indeed have been, as Bush contended, the perfect person for the job. Here, we discuss two things: Pitt's reasoning for why he did not believe the dual role of auditor and consultant was a problem and his proposed multi-pronged plan for the SEC in the wake of the current scandals.
Two weeks before the Enron scandal, Pitt was giving a talk to the AICPA governing body and said, "The agency [the SEC] I am privileged to lead has not, of late, always been a kinder and gentler place for accountants . I want to have a continuing dialogue, and partnership, with the accounting profession, and we will do everything in our power to evidence a new era of respect and cooperation."  Talk about bad timing. However, Pitt stood firm that auditor independence, especially with regard to a potential conflict of interest with consulting practices, was not the cause of these current problems. To his credit, he may have been right. When Levitt battled against auditors engaged in consulting services, it was based on hearsay evidence rather than on any proven cases.  Even Levitt's blue-ribbon committee, the Panel on Audit Effectiveness, reported that among the 126 audits that it studied, the quality of the audits were actually better in 25 percent of the cases in which the auditor also provided consulting services, and in no cases was there a conflict.  Pitt had pointed out that independence is important, but taking away consulting was not getting at the issue of independence. He stated that the mere fact that auditors rely on their clients ' fees made them non-independent.  However, he had made some recommendations (some pertaining to the accounting profession), but they were not in the form of new rules or regulations. Instead, his solutions took on the appearance of a free-market agenda. 
Basically, Pitt called for stronger enforcement, stronger penalties for corporate wrongdoing, better financial disclosure, and some reform of auditing.  Specifically, with regard to stronger enforcement, Pitt proposed a new oversight board, the Public Accountability Board, that would be made up of mostly non-accountants and would oversee the accounting. Currently, the accounting profession polices itself via the AICPA. Also, he wanted a stronger SEC, which he felt needed a budget that was almost 20 percent larger than it already was.
With regard to stiffer penalties for corporate officers, Pitt wanted them to be more liable for their books, he wanted to force them to disclose insider stock sales within 48 hours, and he wanted to punish them for wrongdoing by imposing more severe penalties, such as restricting eligibility to serve as directors in the future and making them give back gains based on deceptive earnings. He also wanted to step up activities to catch corporate wrongdoing. On the disclosure front, Pitt wanted the Financial Accounting Standards Board to move faster and make rules clearer. Finally, with regard to auditing and auditor independence, Pitt thought that each firm's audit committee should decide for itself whether or not its auditor is truly independent rather than just simply preventing auditors from consulting, as we have previously discussed. Further, Pitt felt that there should be more focus on auditor compensation to ensure that auditors are independent. For example, does an auditor get a bonus if his or her firm's books grow? If so, are auditors really independent?
Are these good plans? Several of the ideas were adopted in the Responsibility Act of 2002. For example, the new law created a new accounting oversight board and increased penalties for white- collar crime. However, the act also mandated a separation between auditors and consultants . Thus, Pitt's recommendation for the audit committee of a given corporate board to handle the problem was not taken. Given the problems of boards of directors' independence (as discussed in Chapter 6), that might be for the best.
However, the implementation of the laws that Congress passed in the summer of 2002 was a problem for Pitt. These laws are described in Chapter 12. Congress only provided a general framework for which the SEC must fill in the details. For example, Congress mandated the creation of a board to oversee the auditing industry. However, it is up to the SEC to do the actual hiring and to set up the organization. Pitt was highly criticized for how he handled this process.
In one instance, he was accused of withholding important information in the nomination process for the chair of the oversight board.  He wanted William Webster, former chief of the CIA and the FBI, to head the new board. Others in the SEC wanted John Biggs, head of TIAA-CREF, to head the panel. In a close vote of SEC commissioners, Webster won 3 “2. A week later, Pitt was accused of not telling the commissioners that Webster had headed the audit committee of U.S. Technologies, the firm that is being investigated for financial misrepresentation. If this had been known, the SEC commissioners may not have voted for him to head the oversight panel. This criticism led to Harvey Pitt's resignation on November 5, 2002. His resignation will delay the SEC's progress toward getting the oversight board up and running.