FacebookTwitterGoogle+RedditEmail

The Pink Elephant at the SEC

Securities and Exchange Commission (SEC) enforcement chief Robert Khuzami took to the airwaves this weekend to defend his embattled agency’s record against Wall Street firms.

Faced with mounting criticisms that the SEC has failed to bring a charge against a high level executive at a major Wall Street investment firm, Khuzami went to the C-Span Washington, D.C. studios last week to be questioned by New York Times reporter Ed Wyatt and Wall Street Journal reporter Andrew Ackerman.

Wyatt asked why top executives at the big Wall Street investment firms aren’t being charged.

“You see the big executives in some of the cases, on the public company issuer side – Countrywide, New Century and those companies – we have charged CEOs, CFOs, senior corporate officers,” Khuzami said.

“In the investment banks, it is a little different. The cases we have in this area are with the issuance of a particular CDO that was misleading. Those kinds of transactions often don’t get vetted in the executive suite. Some information does. When you are talking about a public company, earnings reports, disclosures and prospectuses to investors – those types of matters are signed off by CEOs and CFOs.”

“But CDO transactions and other deal specific matters often aren’t vetted at the senior corporate level. Now, don’t get me wrong, we follow the trail wherever it leads. But the nature of the transactions is a little different. You are not going to see as many prosecutions of those folks for those types of violations as you might otherwise. But again, we look strongly and thoroughly across the entire corporate network.”

In April 2010, the Wall Street Journal reported that Khuzami oversaw a group of lawyers at his old firm, Deutsche Bank AG, that was closely involved in developing collateralized debt obligations, the same product in the agency’s fraud lawsuit against Goldman Sachs Group.

Former SEC official and whistleblower Gary Aguirre saw reports of the C-Span interview with Khuzami and was puzzled.

“I am puzzled how journalists can conduct a conversation with Khuzami without mentioning the pink elephant sitting beside him,” Aguirre said. “If Khuzami begins trading back the responsibility for the toxic debt and derivatives to executive suites, he will find himself visiting his own executive suite. Khuzami was neck-deep in supervising the attorneys responsible for that staff at Deutsche Bank. Who would go softer on the Wall Street execs who created the financial crisis than one of their own?”

In it’s April 2010 article, the Journal reported that “before taking his current job at the SEC last year, the 53-year-old Mr. Khuzami spent five years running the U.S. legal division of Deutsche Bank, one of the largest issuers of collateralized debt obligations in 2006 and 2007.”

“As part of that job, he worked with lawyers who advised on the CDOs issued by the German bank and how details about them should be disclosed to investors. The group included more than 100 lawyers who also defended the bank against lawsuits and vetted other financial products, these people said,” the Journal reported.

“Deutsche Bank has faced allegations of inadequate disclosure over its creation of CDOs. It isn’t clear if Mr. Khuzami personally reviewed any structured-finance deal documents in his role at the bank, and outside law firms were also involved in CDO work.”
“Deutsche Bank was doing exactly what Goldman Sachs was doing,” Aguirre told Corporate Crime Reporter. “And Khuzami was supervising the attorneys creating the legal documents for that. For every one of these documents – he’s at the head supervising the lawyers.”

“If you are going to start digging back into the executives suites – how about the general counsel’s office?”

“And at the SEC, Khuzami sets the model for settling with the big Wall Street firms. Goldman gets busted for $550 million, but only a mid-level trader gets charged. No higher level Goldman executives get charged.”

But during the C-Span interview, Khuzami wasn’t challenged about Goldman or Deutsche Bank.

That gave him space to make the argument that the SEC is fulfilling its role as tough cop since the financial crisis.

“Over 102 entities and firms have been charged,” Khuzami said. “Over 55 CEO, CFOs and senior corporate executives – for conduct across the mortgage related areas, from issuing companies like Countrywide and New Century, to those firms that issues CDOs with misleading statements, such as Goldman Sachs, JP Morgan, Wachovia and Citigroup to the mutual fund complexes who loaded their funds up with riskier mortgage assets.”

“We have been active across the board. We have a specialized unit set up to handle these cases. We are vigorous across the platform.”

“Why aren’t more of these folks in jail? The SEC does not have criminal authority. But we work closely with the Justice Department in these cases.”

Khuzami said the SEC is “significantly underfunded.”

“While we are responsible for regulatory 35,000 entities, public companies, broker dealers, investment advisors, transfer agents – anybody who might commit securities fraud – we are about the size of the DC police force.”

“But we punch well above our weight class. And I like our chances in our cases.”

“We were underfunded before Dodd Frank, Dodd Frank has only increased the burden.”

Khuzami said that the SEC’s newly created whistleblower office is “thriving.”

“We are getting a substantial number of tips and referrals – and more importantly higher quality ones,” Khuzami said. “The whistleblower program, as well as the cooperation program where we offer reduced sanctions for persons who come forward with evidence – those are two of the programs to get information sooner about wrongdoing.”

Russell Mokhiber edits the Corporate Crime Reporter. 

More articles by:

Russell Mokhiber is the editor of the Corporate Crime Reporter..

Weekend Edition
December 14, 2018
Friday - Sunday
Andrew Levine
A Tale of Two Cities
Peter Linebaugh
The Significance of The Common Wind
Bruce E. Levine
The Ketamine Chorus: NYT Trumpets New Anti-Suicide Drug
Jeffrey St. Clair
Roaming Charges: Fathers and Sons, Bushes and Bin Ladens
Kathy Deacon
Coffee, Social Stratification and the Retail Sector in a Small Maritime Village
Nick Pemberton
Praise For America’s Second Leading Intellectual
Robert Hunziker
The Yellow Vest Insurgency – What’s Next?
Patrick Cockburn
The Yemeni Dead: Six Times Higher Than Previously Reported
Nick Alexandrov
George H. W. Bush: Another Eulogy
Brian Cloughley
Principles and Morality Versus Cash and Profit? No Contest
Michael Duggin
Climate Change and the Limits of Reason
Victor Grossman
Sighs of Relief in Germany
Ron Jacobs
A Propagandist of Privatization
Robert Fantina
What Does Beto Have Against the Palestinians?
Richard Falk – Daniel Falcone
Sartre, Said, Chomsky and the Meaning of the Public Intellectual
Andrew Glikson
Crimes Against the Earth
Robert Fisk
The Parasitic Relationship Between Power and the American Media
Stephen Cooper
When Will Journalism Grapple With the Ethics of Interviewing Mentally Ill Arrestees?
Jill Richardson
A War on Science, Morals and Law
Ron Jacobs
A Propagandist of Privatization
Evaggelos Vallianatos
It’s Not Easy Being Greek
Nomi Prins 
The Inequality Gap on a Planet Growing More Extreme
John W. Whitehead
Know Your Rights or You Will Lose Them
David Swanson
The Abolition of War Requires New Thoughts, Words, and Actions
J.P. Linstroth
Primates Are Us
Bill Willers
The War Against Cash
Jonah Raskin
Doris Lessing: What’s There to Celebrate?
Ralph Nader
Are the New Congressional Progressives Real? Use These Yardsticks to Find Out
Binoy Kampmark
William Blum: Anti-Imperial Advocate
Medea Benjamin – Alice Slater
Green New Deal Advocates Should Address Militarism
John Feffer
Review: Season 2 of Trump Presidency
Rich Whitney
General Motors’ Factories Should Not Be Closed. They Should Be Turned Over to the Workers
Christopher Brauchli
Deported for Christmas
Kerri Kennedy
This Holiday Season, I’m Standing With Migrants
Mel Gurtov
Weaponizing Humanitarian Aid
Thomas Knapp
Lame Duck Shutdown Theater Time: Pride Goeth Before a Wall?
George Wuerthner
The Thrill Bike Threat to the Elkhorn Mountains
Nyla Ali Khan
A Woman’s Selfhood and Her Ability to Act in the Public Domain: Resilience of Nadia Murad
Kollibri terre Sonnenblume
On the Killing of an Ash Tree
Graham Peebles
Britain’s Homeless Crisis
Louis Proyect
America: a Breeding Ground for Maladjustment
Steve Carlson
A Hell of a Time
Dan Corjescu
America and The Last Ship
Jeffrey St. Clair
Booked Up: the 25 Best Books of 2018
David Yearsley
Bikini by Rita, Voice by Anita
FacebookTwitterGoogle+RedditEmail