Top SEC cop Khuzami calls it quits

By Bloomberg News

Jan 13, 2013 @ 12:01 am (Updated 4:22 pm) EST

Robert Khuzami
Robert Khuzami (Bloomberg)

Robert Khuzami, the Securities and Exchange Commission enforcement chief who led its pursuit of financial crime after the credit crisis, is stepping down.

In a memorandum Wednesday announcing his departure, he said that he would remain at the SEC for about two weeks.

SEC Chairman Elisse Walter hasn't named a successor.

In a statement, she said that Mr. Khuzami's “leadership and bold ideas transformed and reinvigorated the enforcement program.”

Ms. Walter's predecessor, Mary Schapiro, hired Mr. Khuzami shortly after she was appointed in 2009 to help restore the SEC's image, which had taken a huge hit for missing Bernard Madoff's Ponzi scheme. Mr. Khuzami, 56, carried out the biggest shakeup in the enforcement unit's history, eliminating management layers, expanding investigators' powers and creating five specialized units to police Wall Street.

“We changed the institution we cherish by unleashing a culture of entrepreneurship, encouragement and opportunity that empowers individual staff members to generate new ideas and take ownership of their individual work and performance,” he said in the memo.

Still, Mr. Khuzami was criticized by lawmakers, judges, investors and at least one current commissioner who argue that the SEC hasn't been aggressive enough in holding top executives accountable for practices that led to a taxpayer bailout of the banking industry.

U.S. District Judge Jed Rakoff of the Southern District of New York, who presided over SEC cases against Bank of America Corp. and Citigroup Inc., accused the commission of balking at bringing tough cases against high-ranking individuals in favor of reaching expedient settlements.

FINANCIAL MELTDOWN

Under Mr. Khuzami, the SEC filed more than 130 cases related to the financial meltdown, including 57 actions against senior corporate officers. His investigators took aim at lenders who generated subprime mortgages, as well as Wall Street traders and investment banks that bundled the home loans for investors.

Mr, Khuzami oversaw some of the biggest settlements in SEC history. The Goldman Sachs Group Inc. in July 2010 agreed to pay $550 million over claims that it misled investors about a mortgage-linked investment; Citigroup reached a $285 million settlement and JPMorgan Chase & Co. forfeited $154 million for their roles in similar deals.

A former federal prosecutor in New York who went on to work as a top lawyer at Deutsche Bank AG, Mr. Khuzami was a strong defender of the SEC's enforcement record and argued that it brought as many cases as the law allowed.

He said that many of the ill-fated investment decisions made before and during the financial crisis didn't amount to securities fraud.

Mr. Khuzami also defended the SEC's policy of not requiring firms to admit wrongdoing when settling allegations, saying that such a stance would lead to protracted litigation and drain the enforcement program of resources.