SEC Appoints Khuzami to Director of Enforcement
The U.S. Securities and Exchange Commission (SEC) announced today that former federal prosecutor and Deutsche Bank executive Robert Khuzami has been appointed Director of Enforcement. Mr. Khuzami will replace Linda Thomsen, who has received the brunt of lawmakers’ strong criticism for the SEC’s failure to uncover the $50 billion Bernard Madoff Ponzi scheme. On February 9, the SEC announced Ms. Thomsen’s plans to resign.
Mr. Khuzami, 52, has served as General Counsel for the Americas of investment firm Deutsche Bank since 2004. In that capacity, he supervised all of Deutsche Bank’s legal matters in the Americas, including litigation and regulatory investigations. Before joining Deutsche Bank in 2002, Mr. Khuzami worked for 11 years as an Assistant United States Attorney in the United States Attorney’s Office for the Southern District of New York. As Deputy Chief and Chief of the office’s Securities and Commodities Fraud Task Force from 1998 to 2002, he prosecuted numerous securities and market-related crimes, including the $700 million Patrick Bennett Ponzi scheme. From 1993 to 1996, Mr. Khuzami served in the office’s anti-terrorism unit, where he was one of three prosecutors in United States v. Omar Ahmed Ali Abdel Rahman, et al., a case culminating in a 10-month trial in which 10 co-defendants were convicted of operating an international terrorist organization responsible for the 1993 bombing of the World Trade Center United Nations headquarters.
The announcement of Mr. Khuzami’s appointment comes just days after Chairman Mary Schapiro outlined new actions intended to strengthen and streamline the agency’s enforcement efforts. Earlier this month, Ms. Schapiro took steps to expedite the process by which the Enforcement staff can begin formal investigations and to remove restrictions implemented by former Chairman Christopher Cox that required the Enforcement staff to seek permission from Commissioners before negotiating penalties against public companies. The appointment this week of Mr. Khuzami, a respected prosecutor, is undoubtedly a central part of Ms. Schapiro’s efforts to reinvigorate the agency’s Enforcement Division. Indeed, Mr. Khuzami’s deep background in criminal law enforcement will help to bolster perceptions that the agency is strengthening its enforcement efforts.
While Ms. Schapiro is described as politically independent, Mr. Khuzami is a registered Republican who has been active in the Republican party. Mr. Khuzami spoke at the 2004 Republican National Convention on behalf of then-President George W. Bush and the controversial Patriot Act, which increased the ability of law enforcement agencies to investigate terrorists at the expense of certain civil liberties. Mr. Khuzami has also spoken out against insider trading, noting that it "undermines the public’s trust in the integrity and fairness of the markets, especially when committed by persons holding high-level positions of trust." Such statements suggest that Mr. Khuzami will continue the SEC’s recent focus on prosecuting alleged insider trading, particularly at investment firms, and his prosecutorial background suggests that the agency will continue its recent trend of bringing more and bigger cases under the Foreign Corrupt Practices Act. More generally, Mr. Khuzami’s experience as a prosecutor and his stated positions on these and other issues, particularly when considered in light of the current economic and political climate, will likely result in a vigorous enforcement program against both individuals and public issuers.
However, Mr. Khuzami’s experience as the general counsel for a global bank may also temper, at least to some degree, his approach in handling allegations against companies. Speaking from his general counsel perspective at a 2004 conference on internal investigations, Mr. Khuzami commented, "It can be very uncomfortable to investigate people in upper management whose support you need to do your job. There are a lot of influences and conflicts you need to realize up front, and then build an architecture in your investigation to deal with them."
Mr. Khuzami’s appointment follows closely the February 6 announcement that David Becker will reprise his role as General Counsel of the SEC, replacing Acting General Counsel Andrew Vollmer, who also faced tough questioning in Congressional hearings. Ms. Schapiro has yet to announce the new Director of Corporation Finance, and it remains to be seen whether other front office positions will change hands in the new administration.