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SEC's Top Cop Stepping Down After Overhauling Enforcement Division
U.S. Securities and Exchange Commission Enforcement Division head Robert Khuzami is leaving the agency after a nearly four-year tenure that included a massive restructuring and record number of new cases.
Khuzami, who has not announced his future plans, joined the SEC when the agency was at a low point, reeling from its failure to detect Bernard Madoff's Ponzi scheme. He moved swiftly to transform the 1,100-person Enforcement Division, overseeing a top-to-bottom overhaul of how the agency detects and prosecutes wrongdoing in the financial marketplace.
"Rob's leadership and bold ideas transformed and reinvigorated the enforcement program," said SEC Chairman Elisse Walter in a news release. "Under his direction, the division not only produced record results, but embraced changes that in the years to come will enable the talented staff to better protect investors through increased efficiency, expertise, and strategic focus."
But he also faced criticism from judges, members of Congress and consumer advocates for failing to go after more top Wall Street executives in connection with the financial meltdown and for settling some cases on the cheap and without an admission of wrongdoing.
Khuzami, who was general counsel for the Americas for Deutsche Bank A.G. and before that, chief of the securities and commodities fraud task force in the U.S. Attorney's Office for the Southern District of New York, was recruited in 2009 by former SEC Chairman Mary Schapiro to serve as the SEC's top cop.
He left his mark, formulating the first-ever standards for offering deals to individuals in return for cooperation and moving 10 percent to 20 percent of division staff into five new specialized units dedicated to specific areas of securities law.
Khuzami also gave senior agency officials independent authority to open formal investigations and issue subpoenas, and established an Office of Market Intelligence to handle the 700,000 tips and complaints the SEC receives annually.
At the same time, SEC lawyers brought a record number of new cases 735 actions in FY 2011 and another 734 actions in FY 2012. High-profile defendants in SEC cases alleging wrongdoing during the financial crisis include Goldman Sachs, J.P. Morgan, Credit Suisse, Citigroup, State Street, Wachovia, Charles Schwab, and former top executives at Fannie Mae, Freddie Mac, and Countrywide, resulting in $2.68 billion in financial relief for harmed investors.
But it hasnt all been triumphs. For example, in September 2009, U.S. District Judge Jed Rakoff of the Southern District of New York refused to approve a $33 million settlement between the SEC and Bank of America, writing that the proposed settlement was "neither fair, nor reasonable, nor adequate."
In a 2009 interview with the National Law Journal, Khuzami explained his approach to corporate penalties.
"Corporate penalties send the important deterrent message to managers and executives that their organizations will suffer financially and reputationally if they are not operated in a lawful manner." he said. "We also recognize that shareholders will indirectly absorb the cost of those penalties. So there is a balancing that occurs in these cases, one that we always engage in and will continue to engage in."
Khuzami has also led a renewed SEC crackdown on insider trading. The Galleon Management/Raj Rajaratnam investigation, for example, resulted in charges against 29 defendants including former McKinsey & Co. global head Rajat Gupta.
I have spent half my career in public service, and nowhere is there the level of professionalism, skill, and talent on such a large and coordinated scale as there is in the SECs Division of Enforcement, Khuzami said in a news release announcing his departure. "They have inspired me, educated me, and motivated me to do my very best, and for that I am eternally grateful."
Khuzami had been mentioned as potential candidate to serve as the next chairman of the SEC. His replacement as head of the Enforcement Division has not been named.
This article originally appeared as a post on The BLT: The Blog of LegalTimes.