Robert Khuzami

Robert S. Khuzami
Official SEC photo
Education	Juris Doctor
Alma mater	University of Rochester Boston University
Employer	U.S. Securities and Exchange Commission
Title	Enforcement Director
Predecessor	Linda Chatman Thomsen

Robert S. Khuzami (born August 2, 1956) is currently the director of the Division of Enforcement of the U.S. Securities and Exchange Commission. He is a former United States federal prosecutor and general counsel of Deutsche Bank AG.

Contents 1 Education and early employment 2 Federal prosecutor 3 General counsel 4 SEC Division of Enforcement 4.1 Major cases through 2010 5 Republican politics 6 Recognition and awards 7 References 8 External links

Education and early employment

Khuzami was born in Brooklyn and grew up in Rochester, New York.^[1] The son of a Lebanese immigrant, he grew up in an artistic family. His parents are professional ballroom dancers and had a dancing school, his sister is the muralist Vicki Khuzami and his brother, Richard, is a musician and producer.^[2][3][4] After taking a few years off after high school, Khuzami enrolled in college, transferring to the University of Rochester^[1] where he was elected to Phi Beta Kappa and graduated magna cum laude in 1979. He received a juris doctor degree in 1983 from Boston University School of Law. From 1983 to 1984, he was a law clerk for John R. Gibson of the U.S. Court of Appeals for the Eighth Circuit in Kansas City, Missouri^[5] and then went to work at Cadwalader, Wickersham & Taft as a litigation associate.^[1]

Federal prosecutor

Khuzami was a prosecutor in the U.S. Attorney's Office in Manhattan's Southern District of New York from 1991 to 2002. From 1999 to 2002, he was chief of that office's Securities and Commodities Fraud Task Force,^[5] where he prosecuted complex securities and white-collar crime, including insider trading, Ponzi schemes, accounting and financial statement fraud, organized crime infiltration of the securities markets, and IPO and investment adviser fraud.

One of his cases involved Patrick R. Bennett, founder of Bennett Funding Group, who was charged with running a pyramid scheme and cheating 12,000 investors of $600 million.^[6] Bennett's first trial, in March 1999, resulted in a hung jury and the judge, Thomas P. Griesa, declared a mistrial. Khuzami announced his intention to continue legal pursuit of Bennett on all counts for which the jury did not reach a decision.^[7] A second jury failed to reach a decision on 11 securities and mail fraud charges and a second judge, John S. Martin, Jr., declared a mistrial on the unresolved charges in June 1999.^[8] Bennett, who admitted to seven counts of lying to SEC prosecutors but otherwise maintains his innocence,^[6] was described by his lawyers as an inept businessman overwhelmed by an expanding company.^[8] In a practice then legal, the judge used his discretion to convict Bennett^[6] of stock fraud and money laundering. He was not convicted of running a Ponzi scheme, the main charge. Bennett was also ordered to forfeit $109 million,^[8] although he filed for bankruptcy in 1996 and was declared indigent and his lawyers were court-appointed. He was sentenced to 22 years, later extended to 30 because his then-wife did not turn over assets to repay investors.^[6]

Khuzami was selected by then-U.S. Attorney Mary Jo White to work with Andrew C. McCarthy and Patrick Fitzgerald in the prosecution of the "Blind Sheikh", Omar Abdel-Rahman, a career-changing case.^[1] At the time, the largest terrorism trial in U.S. history, ten defendants were convicted of operating an international terrorist organization responsible for the February 1993 World Trade Center bombing and who planned simultaneous bombing attacks on FBI New York headquarters, the United Nations and the Lincoln and Holland Tunnels.^[5] Khuzami also prosecuted those accused of assassinating Meir Kahane,^[9][10] and plotting the murders of Hosni Mubarak of Egypt^[9][11] and the Secretary General of the United Nations. Khuzami also supervised some of the initial investigation in New York following the September 11, 2001 attacks.^[5]

General counsel

In 2004, Khuzami was hired by Richard H. Walker to work at Deutsche Bank in New York, where he supervised more than 100 lawyers^[12] and oversaw Americas-based litigation and regulatory enforcement. From 2002 to 2004, he headed their global litigation and regulatory investigations. He stayed at the bank until 2009. Walker, who had met Khuzami at Cadwalader, Wickersham & Taft when Walker was a partner there, later recommended him for the enforcement job at the SEC,^[1] a job he had once held himself.^[13][14]

SEC Division of Enforcement

Khuzami was appointed by U.S. Securities and Exchange Commission (SEC) Chairman Mary Schapiro^[5] to succeed Linda Chatman Thomsen after the SEC had come under public criticism for failing to detect Bernard Madoff's Ponzi scheme.^[12][15][16] His appointment was controversial because of his employment at Deutsche Bank, a global investment firm which did business with Goldman Sachs. He was portrayed as an outsider by some^[1] but had had eleven years' experience as a federal prosecutor.^[17]

Inheriting a demoralized agency ridiculed as ineffective, Khuzami began a broad reorganization of the top-heavy Enforcement Division.^[18] He left top salaries in place, but forced administrators back into investigations.^[17] He eliminated a layer of management^[19][20] and formed national units to concentrate expertise in five areas.^[1] He created a new system to collect, organize, investigate and data mine tips and complaints,^[1] tens of thousands of which are received by the SEC every year. The new units focus on probes into investment advisers, investment companies, hedge funds and private equity funds; financial derivatives and other "complex financial products;" market abuses, such as large-scale insider trading and market manipulations; municipal securities and public pension funds; and violations of the Foreign Corrupt Practices Act.^[1] Khuzami's initiatives are the largest restructuring of the Enforcement Division in its 40-year history.^[20]

As part of the restructuring, Khuzami also initiated a cooperating witness program designed to incentive persons with knowledge of securities laws violations to assist SEC investigations. He told The Washington Post, "There is no substitute for the insider's view into fraud and misconduct that only cooperating witnesses can provide. That type of evidence can expand our ability to conduct our investigations more swiftly, and to act quickly to file charges, freeze assets and protect investors."^[21]

A former SEC investigator, Gary Aguirre, who was fired after he questioned the SEC's failure to pursue an insider-trading case against John J. Mack,^[22] describes the new program differently. Aguirre says it turns the SEC into a middleman between Wall Street firms and the Justice Department that will negotiate fines and circumvent a prison sentence.^[13] As Aguirre describes it, "First, the SEC and Wall Street player make an agreement on a fine that the player will pay to the SEC. Then the Justice Department commits itself to pass, so that the player knows he's 'safe.' Third, the player pays the SEC — and fourth, the player gets a pass from the Justice Department."^[13] Khuzami has been criticized for the new policy, which Republican Senator Chuck Grassley says the SEC's own enforcement manual prohibits^[13] and the senator has asked for an explanation of Khuzami's remarks.^[23]

Major cases through 2010

Khuzami has been involved with numerous important cases at the SEC.

• In June 2009, the SEC sued Angelo Mozilo, former CEO of mortgage lender Countrywide Financial, and two other former officers, charging that they misled investors about the quality of Countrywide's loans while knowing the company was fueling its growth by letting its underwriting guidelines deteriorate and originating a growing number of risky subprime loans. In October 2010, the SEC settled the lawsuit and Mozilo was required to pay a fraction of the $521.5 million he had earned, just $67.5 million in penalties and disgorgement.^[24][25]

• In August 2009, the SEC filed a suit against Bank of America, alleging that the bank failed to disclose $3.6 billion in bonuses that Merrill Lynch paid its employees.^[26] In January 2010, the SEC filed another suit against the bank, alleging it failed to disclose extraordinary fourth-quarter 2008 losses at Merrill Lynch prior to a December 5, 2008 shareholder vote to approve a merger between it and Merrill Lynch. In February 2010, Jed S. Rakoff, a federal judge derided, but approved a settlement to resolve the lawsuits, having rejected a previous settlement for $33 million as too small. He called the new agreement "inadequate and misguided" because the penalties were "very modest."^[1][27]

• In October 2009, relying on informants and wiretaps, Raj Rajaratnam and his hedge fund, Galleon Group, were charged with an insider trading scheme that generated more than $25 million in illicit gains. Six others involved in the scheme were also charged, including senior executives at IBM, Intel and McKinsey & Company.^[28][29]

• In December 2009, three former executives of New Century Financial Corporation were charged with conspiring to mislead investors by not disclosing dramatic increases in the rate of borrowers who were defaulting almost immediately on their loans.^[30]

• In April 2010, the SEC filed a suit against Goldman Sachs and one of its vice presidents, Fabrice Tourre, alleging that the firm misled investors with respect to a subprime mortgage product. The SEC charged that Goldman and Tourre did not inform clients that what they bought was crafted in part by hedge fund manager John Paulson, who was betting the product would fail. In July 2010, Goldman Sachs agreed to pay $550 million to settle the case, among the largest penalties ever assessed in the 76-year history of the SEC, although just 1% of Goldman's market value at the time and 2% of its cash balance in March 2010, and considered to be a "slap on the wrist".^[16][31] The penalties prompted a sigh of relief from Goldman and Wall Street.^[32] In announcing the settlement, Khuzami twice referred to it as "more than half a billion dollars", but Michael J. Driscoll, a professor and former senior managing director at Bear Stearns called it "a steal".^[32] A former SEC commissioner, Paul Atkins, said he was "embarrassed, as an American," describing the suit as "basically playing for headlines with very little substance."^[32] Eliot Spitzer said Goldman's reaction was "OK, we'll pay you $550 million to settle the Abacus case — that's a small price to pay for the $12.9 billion we got for the AIG bailout."^[33]

• In July 2010, Citigroup, with a market cap of $120 billion, agreed to pay a $75 million penalty^[34] to the SEC for its failure to adequately disclose its exposure to subprime mortgage debt in 2007. Citigroup advised investors it held $13 billion in subprime investments when in fact it was more than $50 billion. Fines for misconduct were also assessed against the former chief financial officer, Gary Crittenden, and director of investor relations, Arthur Tildesley.^[35][36]

• In September 2010, John Flannery, a former chief investment officer of State Street Bank & Trust Company, and James Hopkins, a former product engineer there, were charged with misleading investors about the bank's exposure to subprime investments. Earlier in the year, the SEC announced a settlement in which State Street agreed to pay $313 million in connection with the charges.^[37][38]

• In December 2010, the SEC, the Department of Justice and other federal and state agencies announced the results of "Operation Broken Trust," a coordinated effort by the Financial Fraud Enforcement Task Force to target investment fraud. The operation resulted in prosecutions against 310 criminal defendants involving $8.3 billion in losses and civil actions against 189 defendants involving $2.1 billion in losses for fraud schemes that victimized more than 120,000 people throughout the country.^[39]

Republican politics

Khuzami spoke before the 2004 Republican National Convention on behalf of then-president George W. Bush and for extension of the Patriot Act.^[12] On April 28, 2005, he testified before the United States House of Representatives Subcommittee on Crime, Terrorism and Homeland Security in support of the reauthorization of the Patriot Act. He also donated to the presidential campaign of John McCain.^[40]

Recognition and awards

In 1996, Khuzami was awarded the Attorney General's Exceptional Service Award and in 1997, he received the Federal Law Enforcement Foundation's Federal Prosecutor Award.^[5] In 2001, he received the Henry L. Stimson Award^[1] for Outstanding Public Service from the New York City Bar Association. In 2010, he was cited as No. 113 in The New York Observer's Power 150^[41] and one of The American Lawyer's Newsmakers.^[42]

References

External links

• Matt Taibbi, "Is the SEC Covering Up Wall Street Crimes?" Rolling Stone (August 17, 2011). Retrieved August 18, 2011

Persondata
Name	Khuzami, Robert
Alternative names	Robert S. Khuzami
Short description	SEC Enforcement Director, former United States federal prosecutor and general counsel of Deutsche Bank AG
Date of birth	August 2, 1956
Place of birth	Brooklyn, New York
Date of death
Place of death