One just broke the story of the most recent scandal in American business; the other has become one of the most-quoted legal experts on corporate scandals.
From the Enron Corp. debacle to the Election Night resignation of Securities and Exchange Commission Chair Harvey Pitt, New York Times legal correspondent Stephen Labaton and law professor James Cox discussed corporate ethics Saturday at the Fuqua School of Business.
Labaton, Law '86, spoke in detail about the anonymous tip that initiated his investigation into Pitt's appointment of William Webster as the head of a new board overseeing the accounting profession. The fall-out from Labaton's initial Oct. 31 story led to Pitt's resignation.
"It all started three weeks ago with a 50-second phone message left on my machine that was both vague and tantalizing," Labaton said. The anonymous source suggested that Labaton look into Webster's involvement on the board of U.S. Technologies, a small, publicly traded company that was facing fraud accusations.
What the source did not know, but what Labaton soon discovered, was that Webster headed a three-person audit committee for the company, voting to dismiss outside auditors in the summer of 2001 after those auditors raised concerns about internal financial controls. Webster told Labaton he had informed Pitt about his involvement in the company, but Pitt decided to withhold the information from the SEC during Webster's appointment. "[Webster] had laid this all out to Harvey Pitt, and he was assured it was not a problem," Labaton said. "He generally felt he was set up. In his mind, he did what he thought was the right thing to do."
Within two weeks, both Pitt and Webster had resigned.
"Pitt is really in my mind a Shakespearean character," Labaton said. "He trained for this job his entire career, but when he got it, he was so blinded by the consequences of the things he was doing."
He added that soon after Pitt assumed the chair in 2001, he vowed that the SEC was not going to be as confrontational to accounting firms as it was under his predecessor, Arthur Levitt. That vow came just before the Enron scandal broke. Since Enron, Pitt had become much more insular and combative to reporters and politicians, Labaton said.
Labaton also described the reporting process of the story to an audience of mostly fellow journalists, specifically the decision of when to stop investigating the story and simply run it, or, as he said, "pull the trigger." The discussion was part of the weekend conference of the Duke Magazine Editorial Advisory Board, of which Labaton is a member.
Cox focused his portion of the discussion on corruption and, in particular, the Enron incident.
He said despite the recent scandal, the SEC needs as much funding and resources as it can get to make sense of the accounting maneuvers corporations are using. "The sad story is that we really have not changed, and there is no reason to believe that the accounting industry is going to cease cross-selling," Cox said.
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