Robert Khuzami, partner with Kirkland & Ellis in Washington, D.C. (Photo: Diego M. Radzinschi/ALM)
Few attorneys have had a career as broad and varied as Robert Khuzami’s, which has ranged from private practice to federal prosecutor to bank general counsel to enforcement director at the U.S. Securities and Exchange Commission.
Khuzami, 60, is now a partner at Kirkland & Ellis’ government and internal investigations group, splitting his time between the firm’s New York and Washington offices.
As an assistant U.S. attorney in Manhattan (1990-2002), he served three years as chief of the securities and commodities fraud task force. There, he prosecuted the so-called “blind sheik” along with other co-defendants in the 1993 terrorist bombing of the World Trade Center. Khuzami served as litigation chief and later general counsel for the Americas at Deutsche Bank until 2009, when he joined the SEC as director of enforcement for four years in the wake of the financial crisis.
The National Law Journal recently talked with Khuzami about trends in enforcement of white-collar crime and what lies ahead for federal regulatory agencies under the Trump administration. Excerpts from our interview, edited for clarity and length, follow.
NLJ: What sort of trends are you seeing in white-collar crime these days?
RK: [After the financial crisis and its aftermath] we are at a bit of an inflection point. A lot of the legacy misconduct is arguably behind us. So the question is what does the future look like — and I think that is not certain.
There are those that are fearful that if you have a combination of a rollback of the Dodd-Frank Act and other reforms, combined with a loss of some controls that were adopted, the lessons of the past might be forgotten more quickly than one would hope …
What we’re seeing now are priorities in sales of securities and other products, in sales and trading issues, in applications of antitrust law to some of the conduct of financial institutions, and a lot of focus on investment advisers and private equity funds and on accounting. You see various [investigations of] manipulations in trading and related investigations around corporate acquisitions and takeovers. … We’ll just have to see what the future brings.
NLJ: As a former federal prosecutor and chief of SEC enforcement, describe how enforcement changes from one administration to another.
RK: A large percentage of what goes on in the Justice Department and the SEC and with other regulators continues unabated as administrations come and go. You are talking about prosecuting individuals and companies for illegal behavior. And for the most part those are things that are bipartisan. Nobody is in favor of people breaking the law. A large amount of what happens in the day-to-day work of those agencies and departments involves exactly that, and it’s not very controversial. Thinking about both agencies [SEC and DOJ], budget constraints are the real consideration. There’s a hiring freeze on, and as individuals leave their posts and those positions can’t be filled, that will have a slow but sure impact over time on what the agencies do. Some of that may be compensated for by increased efficiencies, or a forced prioritization.
But you do have to keep in mind that these agencies — particularly the SEC with an enforcement division of maybe 1,300 people — are responsible for regulating tens of thousands of investment advisers, transfer agents, broker dealers, and public companies, as well as individuals. So they were already significantly outgunned.
There are some things that are likely to get some additional assessment or analysis to at least see if those policies will continue. Under the prior SEC administration with [Chairwoman] Mary Jo White you saw an emphasis on first-ever cases. I think there’ll probably be some closer scrutiny on bringing cases for the first time in certain areas. And there’s a possibility that alternative ways of communicating to companies in the regulated world on what kind of behavior is acceptable and what is not might be made through other means. That can be through guidance, or FAQs or speeches or 21A reports [which publicize the facts uncovered in an investigation] or other ways, rather than necessarily bringing a case for the first time.
NLJ: Despite billions of dollars in fines and penalties against banks in the past several years, President Trump has called for major changes in the Dodd-Frank Act. Do you think that is wise?
RK: I don’t think that re-examination and reconsideration of Dodd-Frank is inappropriate. First, a majority of the fines and penalties against banks relates to conduct that occurred before Dodd-Frank was passed, or before the underlying rules were written and implemented. So, to some degree, the final story on the effectiveness of Dodd-Frank, and in particular whether the legislation properly de-risks the financial sector in a manner that does not unduly restrict capital formation, lending and the other necessary functions of financial institutions, remains to be seen.
I do think the legislation, as well as other post-crisis developments, has been instrumental in putting banks back on solid footing, and starting the process of restoring the faith of the public, investors, employees and clients in our financial institutions. In the end, I don’t agree that a wholesale abandonment of Dodd-Frank is wise, but a close examination of certain provisions is certainly appropriate.
NLJ: What changes do you see under the new attorney general, Jeff Sessions?
RK: I think that you may get a [new] look at the Foreign Corrupt Practices Act, the anti-corruption law that is somewhat controversial, mostly due to the potential breadth of the law. There is a view that perhaps the government can do more to assist companies in deciding how they can conduct business in jurisdictions where corruption exists. Companies overwhelmingly aren’t interested in handing out bribes or engaging in corrupt behavior, but typically they find themselves operating in countries where that is the norm or accepted behavior. There’s a way of giving additional guidance or changing the law in a way that might strike a balance.
NLJ: Are there any other areas where you think we might see some enforcement changes?
RK: The whistleblower area is one. Obviously whistleblowers can be very valuable to the government and to law enforcement. But they are often a mixed bag, because they sometimes come with mixed motives and baggage and a fair amount of self-interest. Some have suggested that whistleblowers should be required to go in-house first to report wrongdoing before going to the SEC; they now have a choice on that. [Some in Congress] are recommending that you prohibit co-conspirators from getting whistleblowers awards. That could have a significant impact because obviously in many cases it is individuals who are engaged in wrongdoing who make the best whistleblowers because they may have the greatest access to knowledge about the scheme.
NLJ: What do you hear about Jay Clayton, the candidate to be the new chair of the SEC?
RK: Jay Clayton from all accounts is a widely respected and thoughtful lawyer, well versed in the capital markets. Remember the SEC has a three-prong mission: provide for capital formation, for orderly markets, and for investor protection. There’s been a great deal of emphasis in the last few years on investor protection. But now we may see more focus on, maybe increasing the ability of companies to raise capital without undue burden, while streamlining the disclosure process.