August 6, 2009 3:08 PM
Meet Robert Khuzami, The SEC's New Enforcement Overlord
Posted by Brian Baxter
While office workers flocked to happy hour in the bars of midtown Manhattan on Wednesday night, The Am Law Daily trekked to a bar of a different sort, The Association of the Bar of the City of New York. The main attraction: the SEC's new enforcement division director, Robert Khuzami.
Dressed in a charcoal pinstripe suit with a threadbare green tie, and with his mop of black hair--picture a poor man's Jon Hamm or rich man's Roger Rees--Khuzami looked and sounded every bit the G-man in this new era of regulation.
After being introduced by Bar president and Allen & Overy senior counsel Patricia Hynes, Khuzami addressed the packed reception hall of 500 people for about an hour.
"These are challenging times in the division of enforcement," Khuzami said, "but also times of opportunity."
The SEC has been heavily criticized in recent months for perceived regulatory failures--most notably the failure to detect Bernard Madoff's massive, decades-long Ponzi scheme. Khuzami began his prepared, bullet-point speech by outlining the changes he plans to implement expanding the enforcement division's powers.
Under Khuzami, a former federal prosecutor who was appointed director in February after serving as Deutsche Bank's general counsel of the Americas, the enforcement division will have the power to subpoena documents without the consent of the SEC's five commissioners.
Should defense counsel "fail to be complete and timely in responses, there will likely be a subpoena on your desk in the morning," said Khuzami, a statement that stiffened the backs of some lawyerly looking individuals seated nearby.
The enforcement division also plans to form five new specialized units, Khuzami said, focusing on asset management (such as hedge and mutual funds); structured financial products (such as derivatives); municipal bonds and public pensions; market abuse and manipulation; and foreign corrupt practices.
The changes will result in more SEC enforcers on the front lines, as the specialized units will be dispersed throughout the country and have the power to assign cases and negotiate settlements. Khuzami hopes the changes will help strip away the layers of bureaucracy that slow down investigations.
A chief operating officer will be hired to oversee information technology and project management, a first for the division. Both areas, he said, contribute to delays in resolving investigations. Khuzami is pushing for more government resources to hire support personnel--the agency's forces, he said, have been reduced by 11 percent since 2005.
The new enforcer also touted some of the division's successes in his first 100 days, including the fraud charges filed against former Countrywide CEO Angelo Mozilo and two former executives in June and the charges against Texas financier R. Allen Stanford over bribes he allegedly paid to a top Antiguan banking official. Khuzami also mentioned two settlements totaling $83 million announced this week with General Electric and Bank of America. (The BoA settlement hit a bump on Wednesday when a federal judge ruled it might be unfair to the public to accept the settlement, although the SEC made news once again on Thursday with a $15 million settlement with Hank Greenberg.)
During a question-and-answer period following his speech, Khuzami denied that he was under pressure from Washington to bring more enforcement actions, but said it was up to the enforcement division to revamp its operations and develop new protocols in order to be a better advocate for investors.
Khuzami embraced a call by SEC chairwoman Mary Schapiro to collaborate with other law enforcement agencies on fraud cases and dismissed criticism that SEC staffers don't have the incentive to ask the tough questions because they one day hope to work for the companies they regulate.
"I don't think anyone succeeds by pulling their punches," Khuzami said. "[A person] acquires certain skills or labels by seeking out the big cases."
At the end of the discussion, an audience member asked Khuzami when his proposed changes would take effect. "Tonight," he responded to laughter and applause.
We'll see who has the last laugh.Make a comment