As new enforcement director at the Securities and Exchange Commission, Robert Khuzami doesn't have the vast investigative powers he had as a federal prosecutor in New York. What he does have is a mandate to restore the reputation of an agency whose image as a force against financial crime has been tarnished by the Bernard...
WASHINGTON — As a federal prosecutor in New York, Robert Khuzami had vast powers to use against white-collar criminals and terrorists. He could wiretap suspects, send FBI agents to their homes and threaten them with decades behind bars. “Those tools are devastating,” he said in an interview.
As the new enforcement director at the Securities and Exchange Commission, he doesn’t have those powers.
What he does have is a mandate to restore the reputation of an agency whose image as a force against financial crime has been tarnished by the Bernard Madoff fraud.
While working within the SEC’s legal limits, Khuzami, 52, is likely to borrow from his prosecutor’s past. With 700 lawyers at his disposal, he is charged with investigating violations of securities laws and frauds at the nation’s public companies and financial firms.
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The enforcement team can investigate financial crimes, file civil lawsuits, reclaim stolen funds and assign penalties with the approval of the agency’s five commissioners, who are nominated by the president. But Khuzami, who started the job last month, may seek to shake up the division, changing how it operates and putting “more arrows in the SEC quiver,” he said.
“We’ll distinguish ourselves in the future by being fast and furious,” Khuzami said. “And to do that means examining our process and procedures top to bottom, to be as nimble and thorough as we can.”
He isn’t ready to fully reveal his playbook yet. But one of the ideas being considered is jettisoning the enforcement division’s internal organization, which is largely haphazard, for a model like the one used by U.S. attorneys in which specialized groups of lawyers work on cases of similar nature. The SEC also might consider paying whistle-blowers for a wide range of information (it can only do so now for insider trading) and pressing for access to information usually reserved for criminal prosecutors, such as grand-jury testimony.
In the interview, Khuzami pledged to bring cases in a timely fashion, and said he wants the SEC to become more of a deterrent to financial crime, noting there are too many white-collar criminals who “feel emboldened to resist, litigate or attempt to hold out for a better deal” with the agency.
Khuzami joins the SEC at a tough time for the agency, with many people inside and outside the SEC accusing it of not moving aggressively enough against financial crime. The Madoff case was a major embarrassment for the agency. Khuzami declined to address the case, except to say that “we should learn from the criticism.”
Meanwhile, state attorney generals including Andrew Cuomo in New York have been quick to steal the agency’s thunder, loudly announcing subpoenas or threatening the barons of Wall Street.
“The process in the last couple of years has seemed to slow down when the SEC was under a prior administration. I wouldn’t expect that to continue with the change of administration,” said Wayne Carlin, a former head of the SEC’s New York office who worked closely with Khuzami. “What I would expect him to bring to the job is a real talent for being able to zero in on what’s really important.”
The newly appointed chairman of the SEC, Mary Schapiro, went looking for a federal prosecutor to serve as enforcement chief even before she had been confirmed by the Senate. But Khuzami — who previously led the prominent white-collar-crime unit at the U.S. attorneys office in the Southern District of New York — was in some ways an unlikely choice.
Rochester, N.Y.-born Khuzami is the son of two professional ballroom dancers. His sister is a muralist, and his brother is a drummer for Greek and Middle Eastern bands. He quips, “My parents look at me, their lawyer son, and shake their head, and say, ‘Where did we go wrong?’ “
Though serving in the Obama administration, Khuzami is a Republican. He spoke at the 2004 GOP convention and was on President Bush’s shortlist to head the U.S. Attorneys Office in the Southern District of New York.
To join the SEC he left a plush job as a top lawyer for Deutsche Bank, which he held since 2002.
Some commentators have expressed concern about lawyers routinely moving between the SEC and private practice, but Khuzami dismisses such criticism. “I reject it unconditionally,” he said. “I left the kind of job one would hope to get after being a regulator in order to take this job.”
Khuzami started as an assistant U.S. attorney in 1990 after graduating from Boston University School of Law and spending a few years in private practice.
In what would become the landmark case of his career, Khuzami successfully prosecuted 10 defendants, including the infamous “blind sheik” Omar Ahmed Ali Abdel Rahman, for bombing the World Trade Center in 1993 and planning attacks on other targets.
As part of the case, Khuzami would go to hotels to visit terrorists-turned-government informants. He and other prosecutors would get letters threatening their lives.
Not long after that case, Khuzami went to work in the white-collar unit in the Southern District of New York, becoming its chief in 1999.
While pursuing financial-crime cases, he encountered turf wars involving the New York attorney general, SEC and the Manhattan and Brooklyn district attorneys.
He helped organized a group representing the different jurisdictions to better handle cases. “We carved up cases, defendants and cooperating witnesses,” he recalled.
In one notable case, the U.S. attorney and SEC swept up more than 120 defendants in an undercover sting operation on securities fraud and other charges, the largest simultaneous arrest in Justice Department history.
The case nabbed members of all five New York mafia families. Later he prosecuted the largest Ponzi scheme of its time. Throughout it all, Khuzami said he came to rely often on the SEC’s expertise.
“You’re going to have a difficult time separating fact from fiction if you don’t know the markets you’re investigating,” he said.