To ensure public confidence in the SEC probe, Chairman William Donaldson "has to take himself out in a credible way," said Stephen Gillers, a law professor at New York University.

Donaldson would be expected under government ethics rules to recuse himself from the investigation into EasyLink Services Corp., the technology company where he was a director and member of the board's audit panel until he resigned in November 2002. A month later he was named SEC chairman by President Bush.

The Piscataway, N.J.-based company confirmed Thursday that the SEC was examining its accounting for some $3 million in revenue in 2000 from its advertising network business.

Donaldson, a former chairman of the New York Stock Exchange, became a director of EasyLink in April 1998. EasyLink was established in 1995 by Gerald Gorman, an investment banker who had worked at Donaldson, Lufkin & Jenrette, the Wall Street firm that Donaldson co-founded.

As a member of the audit committee starting in early 2000, Donaldson was charged to act as a watchdog over the company's accounting. He also sat on the compensation committee starting in mid-1999.

EasyLink had previously been criticized for excusing a loan made to chief executive Thomas Murawski, a decision taken when Donaldson was a director.

Donaldson's predecessor at the SEC, Harvey Pitt, recused himself from the agency's investigation of collapsed Enron and its auditor, Arthur Andersen LLP, because as a securities lawyer he had had Andersen as a client. Pitt has said that he had no involvement in the investigation beyond voting with fellow SEC commissioners to authorize it.

It was not known whether Donaldson had voted on authorizing the inquiry into EasyLink. He has declined any comment on the issue, as have SEC spokesmen.

The agency's ethics official didn't immediately return a telephone call seeking comment.

As SEC chairman, Donaldson normally would receive updates from agency attorneys on the course of an investigation and would vote along with the other four commissioners on any enforcement action to be brought or settlement to be reached.

In this instance, Gillers said, Donaldson must not be privy to any information regarding the EasyLink investigation and must be completely "locked out" of any discussions, files or electronic data pertaining to it.

"This is definitely something that should be watched," said James Benton, an ethics specialist at watchdog group Common Cause. The appropriate course for Donaldson is thorough recusal, he said.

The group called for Pitt's resignation in October 2002 for, among other things, having met privately with the heads of companies under investigation by the SEC.

As it turned out, Pitt resigned the following month after a blowup over his selection of former FBI Director William Webster to head a new board to oversee the accounting industry - an episode with some similarities to Donaldson's situation regarding EasyLink. Pitt had not informed the other SEC commissioners that Webster had headed the audit committee of a company that later came under investigation for fraud and that he had fired the company's outside auditors. After that information came to light, Webster resigned as chairman of the oversight board.

-- Marcy Gordon