A Lame Duck's Revenge

By Adam Zagorin

Remember Harvey Pitt, the deposed Securities and Exchange Commission (SEC) chairman? The onetime lawyer for big accounting firms resigned last November following criticism that his relationship with former clients was keeping him from cracking down on corporate scandal. President Bush appointed a successor, former brokerage and insurance executive William Donaldson. But with Donaldson's nomination not yet approved by the Senate, Pitt is still at the helm--and wielding more power than ever.

In the past two weeks, the SEC has issued a spate of new rules intended to prevent future Enron-style scandals. But under intense lobbying pressure from Wall Street as well as the accounting and legal professions, the commission has watered down or delayed some of these rules. For example, the SEC voted to allow accounting firms to continue to earn fat consulting fees from the companies they audit. And lawyers will be required to report any wrongdoing they witness to senior company executives but not to the SEC--as the SEC had initially proposed.

As outgoing chairman, Pitt remains a business-friendly activist. However, he has backed some more aggressive reforms. One would force mutual funds to reveal their votes in proxy battles, a measure sought by consumer groups and labor unions to give power to individual investors.

When Donaldson eventually does take command, he could find that most of the commission's important post-Enron decisions have already been made--and by a lame duck. --By Adam Zagorin