Robert S. Khuzami: Advisers in sights of SEC’s top cop
Robert S. Khuzami has put investment advisers on notice that he has them in his cross hairs.
Robert S. Khuzami has put investment advisers on notice that he has them in his cross hairs.
“Advisers are a natural focus because that is where the money is,” said Mr. Khuzami, head of the SEC’s enforcement division. “Advisers are a very significant player when it comes to investing and being responsible for the investments of retail investors and the public.”
When he joined the Securities and Exchange Commission in 2009, Mr. Khuzami joined an agency still reeling from its failure to detect adviser Bernard Madoff’s massive Ponzi scheme.
In his first days as the SEC’s top cop, he promised to “relentlessly pursue and bring to justice those whose misconduct infects our markets, corrodes investor confidence and has caused so much financial suffering.”
By the end of his first year, the former federal prosecutor and general counsel for the Americas for Deutsche Bank AG had reorganized the division into five investigative units, including an asset management branch, which enforces regulations that apply to investment advisers, who manage $43 trillion in assets.
Its 65-person staff, the largest of the five units, is on the front lines of protecting the public, because advisers typically are the conduit through which investors access financial markets.
The enforcement division deploys computer analysis to identify hedge funds, private-equity and other advisory firms’ reporting of returns that seem too good to be true. Investigators also are digging into adviser registration documents to look for lies or red flags that may signal a firm’s willingness to report falsely important information used by investors.
Working with SEC examiners, the agency recently brought several cases alleging compliance violations, hoping to send a signal that it’s serious about advisers’ maintaining independent legal-compliance procedures, Mr. Khuzami said.
In fiscal 2011, the SEC initiated 146 actions against advisers, a 30% increase over the previous year. Broker-dealers were the focus of 112 SEC enforcement actions, representing a 60% increase over the previous year.
The division has filed 735 enforcement actions in 2011, producing $2.8 billion in penalties and money returned to investors.
“Rob has hired some aggressive, smart attorneys who demonstrate an urgency in their work, and those hires are paying dividends,” said Matt Kitzi, Missouri securities commissioner and head of the North American Securities Administrators Association Inc.’s enforcement section.
Mr. Kitzi also said the commission is increasingly willing to collaborate with the states on enforcement issues, which helps regulators reach “investor-centric resolutions.”
Even though Mr. Khuzami came to the SEC directly from his role at Deutsche Bank, his crime-fighting record signals that his promise to bring a “strong, swift and strategic” approach to enforcement should be taken seriously.
The 55-year-old Mr. Khuzami was born in Brooklyn, N.Y., and spent 11 years through 2002 with the U.S. Attorney’s Office for the Southern District of New York. During that time, he prosecuted “the blind sheik,” Omar Ahmed Ali Abdel Rahman, who along with nine others was convicted of the 1993 bombing of the World Trade Center and planning the simultaneous attacks on the FBI’s New York headquarters, the Lincoln and Holland tunnels, and the headquarters of the United Nations.
Mr. Khuzami’s tenure at the SEC hasn’t been without its difficulties: criticism that the agency should do more to penalize Wall Street firms, a federal judge’s challenge of the commission’s settlement process that allows firms to “neither admit nor deny” allegations, and a hectic schedule of public appearances.
In a single day this month, for instance, Mr. Khuzami spoke to the Consumer Federation of America, submitted written testimony to a Senate panel looking at whether members of Congress can skirt insider trading laws and helped the division announce fraud charges against three hedge fund advisory firms and six individuals.
Looking to next year, Mr. Khuzami identifies the agency’s limited budget as his biggest hurdle, noting that the SEC must police broker dealers, investment advisers, as well as any person who might violate securities laws.
“Resources remain a real challenge for the agency,” he said.
Learn more about reprints and licensing for this article.
