Ex-SEC Officials Joining Boards of Web Businesses

WASHINGTON —  When he was the top U.S. securities regulator, Richard Breeden busted the biggest scandal to hit the market for U.S. Treasury debt. Now he’s joining the board of ESpeed Inc., which operates the largest electronic marketplace for government bonds.

Breeden, a former chairman of the Securities and Exchange Commission, isn’t alone. At least five officials who formerly sat on the SEC’s top board now work as directors at Web-based businesses, including Breeden and ex-commissioners Carter Beese, Steven Wallman, Edward Fleischman and Charles Marinaccio.

As onetime securities regulators, these officials have an intimate knowledge of the legal hurdles for issuing stock--a top priority in the business plans of many Internet companies. The former commissioners also lend legitimacy to online companies that often lack track records and seasoned executives.

“In terms of credibility with Wall Street, they might give that added gray hair” that investors want to see, said Robert Hallagan, vice chairman of Heidrick & Struggles Inc., a Chicago executive search firm.

Of course, several of the former commissioners work at Internet companies that are directly engaged in the securities industry. Their experience would be a direct benefit at a time that the Internet’s role in financial markets is still developing.

Breeden recently agreed to be a director at ESpeed, a Cantor Fitzgerald-owned company that has filed for an initial public offering. While serving as chairman of the SEC under former President Bush from 1989 until 1993, Breeden prosecuted Salomon Bros. Inc. for attempting to manipulate U.S. Treasury auctions for government bonds.

Fleischman now sits on the board at Wit Capital Group Inc., an investment bank that specializes in underwriting stock sales over the Internet. Marinaccio, an SEC commissioner from 1984 to 1985, is a director at the online brokerage Ameritrade Holding Corp.

Fleischman said his 40 years as a lawyer, as well as personal ties to Wit Capital’s Chairman Robert Lessin, were part of the reason he came aboard. Fleischman also acknowledged that his ties to the SEC, the agency that regulates Wit Capital, also played a role.

“I would be kidding myself if I didn’t think that the fact that I was at one time an SEC commissioner was meaningful to them,” Fleischman said.

At the same time, Internet companies with no commercial links to Wall Street have recruited ex-SEC commissioners for their boards. The board at VCampus Corp., a McLean, Va., company that helps colleges and corporations establish and operate online campuses, includes Wallman, a lawyer who was an SEC commissioner from 1994 to 1997.

It might seem natural that these commissioners joined corporate boards once they left the agency. Executive recruiters, though, say large companies generally have steered away from filling board seats with former SEC commissioners, most of whom are lawyers by trade.

“Generally speaking, the Fortune 200 companies don’t heavily recruit lawyers to their board,” said Dennis Carey, who specializes in finding directors on behalf of Spencer Stuart, an executive search firm based in Chicago. “They can obtain the same insight through their legal staff.”

Big legal staffs don’t exist, however, at many Internet companies, which rely on directors for advice.

The chairman of Aether Systems Inc. said it was more than an SEC background that led him to hire Carter Beese as a director.

“The fact that Carter was a former commissioner had some appeal,” said David Oros, who also serves as chief executive of Aether, an Owings Mills, Md.-based provider of a service that lets investors trade stocks online using hand-held computers. “But the main appeal was Carter’s total career and all his contacts.”

Beese, a onetime investment banker at Alex. Brown & Sons Inc., is also serving on boards at China.com Corp., a pan-Asian Internet company, and TechnologyNet Inc., a privately owned company that provides technology consulting services via its Web site.

Interestingly, none of the former SEC commissioners is serving on boards outside the Internet realm. Although unable to speak for the other commissioners, Beese attributes his Internet focus to a desire to work in one of the hottest business fields.

“It’s arguably the most dynamic aspect of our economy today,” Beese said.

Another factor may be money. With Internet shares skyrocketing to new heights each day, stock options may be a powerful incentive for those who have endured the austerity of government wages.