The SEC's New Enforcer
Former U.S. Prosecutor Charged With Adding Muscle, Restoring Agency's Image
Tuesday, April 7, 2009; Page A16
As a federal prosecutor in New York, Robert S. 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 L. 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.
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 week, 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 whistleblowers 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."
Some top SEC officials believe the enforcement division needs expanded powers to do its job well. SEC Commissioner Luis Aguilar has proposed that top enforcement officials be able to issue subpoenas, instead of having to go to the commissioners. In a recent speech, Aguilar said the agency needs Congress to give it new legal powers. "The commission needs authority to bring criminal charges where the Department of Justice has declined to do so," he said.
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?' "