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Wednesday, January 29, 2003

Donaldson May Face Confirmation Troubles

by: Sean Hanna, Editor in Chief

Harvey Pitt may be at the SEC longer than anyone believes. Senate Democrats are preparing to go after his nominated successor, William Donaldson, according to a report in the Washington Post. The line of attack may be especially effective in the current Washington environment.

The Democrats intend to home in on Donaldson's time as chairman of the New York Stock Exchange (NYSE). It was during his tenure that eight NYSE floor brokers were caught illegally sharing profits from client's trades. The brokers were eventually indicted on criminal charges. The judge overseeing one of the trials wrote that NYSE officials allowed the illegal activity.

"The Exchange's interpretation of the ban proved anemic," the judge wrote. And "its enforcement of the prohibition . . . proved downright anorexic."

Look for the trial record to reappear in the confirmation hearing (assuming there is one). The paper quotes a spokesperson for Senator Paul S. Sarbanes (D-Maryland) stating that "This will be part of a careful review of Mr. Donaldson's record during the confirmation hearing."

The line of questioning may embarrass the administration that is already seen as having ties that are to close to the center of corporate scandals. The most significant ties, of course, are to Enron. Pitt also came under attack for his close ties to the accounting profession as that scandal unwound.

The questioning may also undermine any political faith that Donaldson can investigate wrongdoing on Wall Street.

If the Democrats do manage to torpedo the nomination, Pitt may find that he is able to stay on at the SEC until a new nominee is found.  

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