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. Last Updated: 07/27/2016

Webster Sued for Dishonesty

NEW YORK -- One of the United States' biggest accounting firms on Monday accused William Webster, who has been tapped to head the new U.S. federal accounting oversight board, of making "false and misleading statements" about his awareness of financial problems at a small company for which he had been a director.

The lawsuit by BDO Seidman deepens the controversy over Webster's appointment to the board, though he said Monday he stood by his previous statements about the company and his dealings with BDO.

Revelations about Webster's service as a director at U.S. Technologies Inc. last week triggered a new crisis of confidence in Securities and Exchange Commission chairman Harvey Pitt, who had championed Webster for the oversight post.

BDO Seidman said it told Webster of accounting troubles at U.S. Technologies a month before the company fired the accounting firm in 2001.

Webster's comments last week to The Washington Post, in which he said BDO did not inform him of the problems until after the termination, are "false and misleading," the firm said in a lawsuit filed in federal court in Washington.

BDO petitioned the court for permission to release confidential information the firm said would prove that it warned Webster and other members of U.S. Technologies' audit committee on July 13, 2001, about significant "internal control" problems. U.S. Technologies replaced BDO as its auditor Aug. 16, 2001.

The timing of the warning has become an "issue of national interest" because of the controversy over Webster's appointment to the accounting board, the suit said.

Webster, 78, is a former federal judge and former director of the FBI and the CIA.

It is unclear whether the law allows BDO to release the records gathered in the course of a confidential audit, and the company is seeking explicit permission, according to the suit, which names only U.S. Technologies as a defendant. BDO had no further comment.

In an interview Monday, Webster said the audit committee held a conference call with BDO on July 13, 2001, but he does not remember the specifics of the meeting and has no notes from it.

If BDO had issued a significant warning, he would have remembered that and would have kept notes reflecting it, Webster said. The absence of such notes "means to me that no bells went off" at the July meeting, he said.

BDO advised the company to make improvements, such as hiring an experienced chief financial officer, in a letter dated Aug. 31, 2001, Webster said. That was two weeks after the auditing firm had been replaced.

U.S. Technologies subsequently made the changes BDO recommended, Webster said. U.S. Technologies fired BDO because it took the firm too long to complete its annual audit and because it charged too much -- more than $700,000 -- not because it had raised issues about internal controls, Webster said.

Webster's work at U.S. Technologies sparked a furor last week when it was revealed that Webster had told SEC chairman Pitt about U.S. Technologies' troubles -- including that the firm has been sued by shareholders alleging fraud -- in advance of the SEC's vote on Webster's appointment to the accounting board.

Pitt did not inform the other SEC commissioners or the White House ahead of the vote. The SEC said Pitt referred the matter to agency staff, which investigated but found "nothing of concern" to bring to the other commissioners' attention, a Pitt spokeswoman said.

The revelations have spawned a number of investigations of Pitt's conduct and new calls for his resignation.

Meanwhile, Webster said he would think about resigning from the accounting board if political issues involving him interfered with the panel's mission.

"I'm not going to stay at the expense of the board doing its work," Webster said.

"I would consider stepping down at any time that I considered my continued service to be an impediment to the board's work."