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Webster May Quit New Oversight Board

November 5, 2002

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WASHINGTON (AP) _ Former FBI and CIA chief William Webster, whose appointment as the head of a new accounting oversight board has ignited sharp debate, is considering whether to step down amid the controversy, according to published reports Tuesday.

He told The New York Times and USA Today he will step aside if he decides he can’t be effective heading the new board, which plans to meet for the first time Nov. 13.

``I’m not the only one that can do this job,″ Webster told the Times. ``If I conclude my ability to serve impedes on the ability of the board to function, I will step aside.″

``I’m watching very carefully to see if all this activity is impeding my ability to act effectively,″ he told USA Today. ``When I reach a conclusion as to whether that effectiveness would be impaired, I’ll act.″

Webster did not return telephone calls on Monday and Tuesday from The Associated Press.

In a related development, BDO Seidman _ the accounting firm fired by Webster as head of the audit committee of the U.S. Technologies board of directors _ filed a federal lawsuit against U.S. Technologies in which it alleged that Webster had made ``false and misleading statements″ last week about how much he knew about the company’s financial problems.

Webster’s statements ``are false and misleading and create the false impression″ that BDO Seidman did not notify U.S. Technologies ``of its financial and accounting weaknesses″ in a timely way, the accounting firm said in the suit. The firm faulted U.S. Technologies for what it said was its failure to correct Webster’s statements.

Webster has denied the accusation.

U.S. Technologies, the company central to the controversy over Webster’s selection to the new accounting board, reinvented itself in 2000 when it bought an Internet ``incubator″ and recruited Webster and former Senate Majority Leader George Mitchell as directors.

Now the company is considered insolvent and faces fraud accusations. Harvey Pitt, chairman of the Securities and Exchange Commission, is in trouble with the White House and is facing investigations into whether he concealed from his fellow commissioners information about Webster’s watchdog role at U.S. Technologies before they named him to head the new board.

On Sunday, just two days before the midterm elections, the House’s top Democrat renewed calls for Pitt to resign for the sake of investor confidence. White House advisers publicly praised Pitt’s record as a corporate fraud fighter but offered no defense of his handling of Webster’s selection.

President Bush, who appointed Pitt last year, and top aides are losing patience with him but have not decided whether to seek his ouster, a senior White House official said Saturday.

Flash back to the peak of the Internet boom. Gregory Earls, the chief executive of Washington-based U.S. Technologies, was a familiar figure on the city’s social and charity-ball circuit _ strongly fueled at the time by high-tech money. So was Jonathan Ledecky, a high-tech entrepreneur and part-owner of pro sports teams.

In February 2000, U.S. Technologies reached an agreement with Ledecky to buy his E2Enet Inc., an Internet ``incubator″ that invested in developing e-commerce businesses. The SEC had previously rejected Ledecky’s bid to take his company public by issuing new stock.

The acquisition changed the face of U.S. Technologies, whose main business at the time was providing contract labor using prison inmates.

``We are excited about the potential transition of U.S. Technologies to include an Internet incubator company,″ Earls said in a news release, included in the company’s report filed with the SEC. He said the deal ``will be U.S. Technologies’ first step towards further developing several promising e-commerce companies and Internet infrastructure technologies.″

At the same time, U.S. Technologies also announced _ in a profile-raising move _ that it was expanding its board of directors to include Webster, Mitchell, former Secretary of State Alexander Haig and several others.

Haig declined the company’s invitation to join the board in April 2000, the month the acquisition of E2Enet was completed. In June, Beth Dozoretz, who was the Democratic National Committee’s finance chairwoman in 1999, became a director.

The directors received thousands of potentially valuable stock options in U.S. Technologies as compensation; the company benefited from their prestige.

The stock options eventually became nearly worthless. The company, and Earls, have had legal problems recently.

In one case, brought against a U.S. Technologies subsidiary by a trust that owns company shares, a Delaware judge found ``credible evidence″ that Earls ``has exhibited a pattern of defrauding investors″ by using partnerships he controlled.

Earls’ activities at the company also reportedly are under investigation by federal prosecutors.

Earls’ attorney, Thomas Green, has denied wrongdoing by his client.

An attorney representing the trust has said Webster, who headed U.S. Technologies’ audit committee, is not suspected of any involvement, despite his approval of the dismissal of BDO Seidman, the company’s outside auditors, after they found accounting problems.

``There is no possible way he (Webster) thought what he was doing was a cover-up. It’s literally impossible,″ the attorney, Stanley Arkin, said last week.

A political firestorm arose from Pitt’s failure to disclose Webster’s audit committee role to his fellow SEC commissioners or the White House.

``People are wanting to regain their confidence in the way corporations are run and the way their stocks are handled,″ House Minority Leader Dick Gephardt, D-Mo., said Sunday.

Support for Pitt among Republicans eroded as Sen. Richard Shelby, R-Ala., criticized Pitt’s handling of Webster’s appointment. Shelby is in line to become the senior Republican on the Senate Banking Committee in January. If the GOP regains control of the Senate after Tuesday’s elections, Shelby would become the panel’s chairman.

In the House, Financial Services Committee Chairman Michael Oxley, R-Ohio, issued a statement Friday saying he had seen ``no evidence to contradict″ the SEC’s original conclusion that Webster was the right choice for the job. But his statement did not mention Pitt by name and did not express support for him.


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