The chief accountant of the Securities and Exchange Commission in the US resigned yesterday after 15 months in office, the second top official in the agency to depart because of his role in the controversial selection of former FBI and CIA director William H. Webster as head of the new national board to police the accounting industry.
Robert K. Herdman submitted a letter of resignation to SEC Chairman Harvey L. Pitt, who just four days ago sent his own letter of resignation to President Bush.
Pitt issued a statement praising his longtime associate, but some sources at the agency said Pitt blames Herdman for allegedly failing to give him all the facts surrounding Webster's tenure as head of the audit committee of U.S. Technologies Inc., a D.C.-based company under investigation for possible fraud. The disclosure of Webster's involvement with the company, and the fact that other SEC commissioners were not told that Webster raised the issue with Pitt before his selection, set off a chain of criticism that led to Pitt's resignation Tuesday.
Herdman, through an SEC spokesman, declined to comment beyond the letter he sent Pitt.
“It is with profound regret that I accepted Robert Herdman's resignation this afternoon,” Pitt said in his statement. “His depth of experience made him the most qualified chief accountant in the agency's history. He has been a tremendous leader to his staff and a tremendous resource to the Commission.”
Pitt, who has said he will remain in his post until a replacement is named, has relied heavily on Herdman's judgment since appointing him last fall. Since the beginning of his tenure, however, Herdman, who was a top partner at the accounting firm Ernst & Young LLP, has been criticized by consumer groups for being overly sympathetic to the accounting industry at a time when bookkeeping abuses at companies including Enron Corp. and WorldCom Inc. suggest a need for greater oversight of accountants.
Pitt and Herdman worked closely on the SEC's strategy for the new accounting board, sources said. The board was mandated by Congress this past summer in response to a series of accounting and business scandals that cost investors and employees billions of dollars. Herdman was present in many of the interviews with potential appointees to the board, sometimes engaging in policy debates with the candidates and advocating positions supported by the accounting industry, sources said.
In the past two weeks he came under intense fire for the role he played in helping Pitt select Webster.
Webster told Pitt on Oct. 16, before the commission voted on Webster's appointment, that questions could be raised about his position as head of the audit committee at U.S. Technologies, which is now insolvent. Pitt then asked Herdman to determine whether Webster's connection to the company should be an issue in his selection process, SEC sources said.
Herdman and the SEC have declined to detail what Herdman did to check on Webster's involvement with the company. One source familiar with Herdman's conversations with commissioners said he checked with SEC enforcement staff and agency computers to see if the SEC was investigating the company. It is not known whether the company was the subject of an investigation.
According to SEC sources, Herdman told Pitt that Webster's involvement with U.S. Technologies posed no problem. Neither of them passed that assessment on to the other four commissioners before they voted on Webster's nomination to the board, nor was U.S. Technologies mentioned in a news release announcing the choice.
Herdman “found no problem,” one SEC source said. “He should have put his finding in a memo to the commissioners, but he didn't,” the source said. The other SEC commissioners learned of Webster's ties with U.S. Technologies from a New York Times report nearly a week after the vote.
Webster has said he didn't know what the agency looked at before he was told that nothing was found that would impede his appointment.
The oversight board has been marred by accusations that the process of selecting its members was politicized, secretive and heavily influenced by the accounting industry, which opposed giving the chairmanship to retirement-fund executive John H. Biggs. Biggs advocated fundamental changes in the way auditors do business. Pitt and Herdman drove the selection process, favoring Webster, sources say.
Herdman's conduct raised additional concerns among some SEC staffers because he was considering hiring a former colleague from Ernst & Young to be the agency's liaison to the new private-sector board. Herdman was a partner at Ernst & Young for more than 25 years before joining the SEC. He became close to Pitt during Pitt's years as a private lawyer, when he represented Ernst & Young and other major accounting firms.
Herdman's resignation takes place immediately, an SEC spokesman said.
“While, with Bob's resignation, the Commission and American investors have lost a great advocate, the legacy that he has left behind will continue to serve them well,” Pitt said in his statement.
Herdman's decision came after determining that staying on would continue to spark controversy and detract from the SEC's ability to address the unprecedented case load it faces. He is not apologizing for any of his actions, sources said.
“It has been an honor to serve under your leadership,” Herdman wrote in his letter to Pitt. “I regret that we did not accomplish all that we set out to do, but we did accomplish a great deal in a time that while short, was replete with unprecedented challenges. As you know, throughout my career I have dedicated myself to work for a more robust accounting profession; a profession that would meet the challenges of an ever-changing environment and fulfill its obligations to the investing public.”
An SEC spokesman said that probes into the Webster selection process by the General Accounting Office, the investigative arm of Congress, and by the SEC's inspector general and chief counsel, will proceed despite Herdman's departure.