Risk & Compliance

New SEC Enforcer Was a Bank Lawyer, Prosecutor

High-profile former federal prosecutor Robert Khuzami, named the embattled agency's director of enforcement, once lobbied for easing restrictions o...
Marie LeoneFebruary 19, 2009

The Securities and Exchange Commission named as its director of enforcement Robert Khuzami, a former bank lawyer who, on behalf of his company, lobbied for easing regulations related to “complex structured-finance transactions.”

The 52-year-old Khuzami, also has a long record as a tough federal prosecutor with the U.S. Attorney’s Office for the Southern District of New York. Most recently, however, he served as the general counsel for the Americas for Deutsche Bank AG. He replaces Linda Chatman Thomsen, who left the SEC for the private sector earlier this month.

In 2004, the first year Khuzami worked for Deutsche Bank, he and senior counsel Michael Kadish sent a letter to the SEC outlining the company’s position on proposed guidelines. The draft rules were aimed at preventing banks from using complex structure-finance transactions (CSFTs) to help companies hide debt, generate phony revenues, or create the appearance of cash flow from borrowed funds.

The guidelines, which were issued in the wake of the Enron scandal, included rules that would have forced banks to get more involved with clients and their client’s auditors to make sure structured transactions were valid. The banking industry as a whole rallied against the proposed rules saying that the guidelines were too ambiguous and cast unwarranted suspicion on legitimate transactions. The Deutsche Bank letter that Khuzami co-authored expressed many of the same concerns other banks had related to policing the intentions of corporate clients.

By January of 2007, the banks won their argument with the SEC, as the regulator, along with the Federal Reserve and three other federal regulators, issued softer final guidelines on how banks should manage the risks of CSFTs. For corporate banking clients, the new guidelines represented a relaxation of a tightened regime of bank scrutiny that the SEC had recommended three years before.

The SEC declined to comment on Khuzami’s letter, noting only that as matter of general policy it does not comment on letters that its current officials submitted while in the private sector.

Before his stint at Deutsche Bank, Khuzami spent 11 years at the U.S. Attorney’s Office for the Southern District of New York, including three years as chief of the Securities and Commodities Fraud Task Force. During his time at the U.S. Attorney’s Office, Khuzami made headlines prosecuting securities and white-collar criminal matters, including those involving insider trading, Ponzi schemes, accounting and financial statement fraud, organized crime infiltration of the securities markets, and initial public offering and investment adviser fraud.

Under his direction, the task force prosecuted several high-profile cases, including U.S. v. Bennett, in which 11 defendants were convicted of running a Ponzi scheme for fraudulently selling more than $1 billion worth of equipment leases and related debt instruments to investors. The task force also cracked a racketeering ring involving all five New York crime families in U.S. v Lino and related cases. In that bust, more than 100 defendants were arrested in an undercover operation involving traded securities of 35 companies. Reportedly, the Lino case represented the largest simultaneous arrest in a securities fraud case in the history of the Justice Department.

Khuzami also prosecuted Omar Ahmed Ali Abdel Rahman in what was then the largest terrorism trial in U.S. history. In that case, 10 defendants were convicted of operating an international terrorist organization responsible for, among other things, the 1993 bombing of the World Trade Center, the assassination of Meir Kahane, the founder of the Jewish Defense League.

“As a former federal prosecutor, Rob is well-suited to lead the SEC’s Division of Enforcement as we continue to crack down on those who would betray the trust of investors,” noted SEC chairman Mary Schapiro in announcing Khuzami’s appointment.