Stepping Up SEC’s Enforcement Activity

As a federal prosecutor,Robert Khuzami被誉为一个有进取心ssive investigator whose doggedness helped convict a blind Egyptian cleric and nine others for a failed plot to blow up New York City landmarks in the 1990s.

Khuzami’s experience and hard-nosed approach attracted the attention of Mary Schapiro, who recruited him early this year to put the teeth back into theSecurities and Exchange Commission’s Division of Enforcement after several years of benign neglect.

库萨米,53岁,一直是这么做的,三星es of high-profile enforcement actions. Only last month, the SEC filed civil charges against Galleon Management hedge fund bossRaj Rajaratnam, five other fund managers and corporate executives and New Castle Funds, a New York–based hedge fund, for allegedly running an insider trading ring that generated $25 million in illegal gains. In June, Khuzami’s unit filed civil fraud charges againstAngelo Mozilo, founder of Countrywide Financial Corp., for allegedly misleading investors about the company’s subprime risks and using insider knowledge to trade in Countrywide stock.

For veteran SEC watchers, the pickup in enforcement activity is a welcome sign. "The enforcement division is the soul of the Commission," says Arthur Levitt Jr., who chaired the agency from 1993 to 2001. "If it is not aggressive and well financed, the agency is impacted."

Khuzami, who most recently was general counsel for the Americas at Deutsche Bank, previously spent 11 years as a prosecutor in the U.S. Attorney’s Office for the Southern District of New York, including three years as head of the office’s Securities and Commodities Task Force. He has been applying many of the lessons learned there at the SEC.

Among his first steps, Khuzami eliminated a layer of management to place more enforcement staff in the field, and delegated subpoena power to senior officers. "This means that if defense counsel resist the voluntary production of documents or witnesses, or fail to be complete and timely in responses or engage in dilatory tactics, there will very likely be a subpoena on your desk the next morning," he warned in a recent speech.

Khuzami has also restructured the division by creating five specialized units to focus on specific market sectors or practices, similar to the way the U.S. Attorney’s Office operates. The Asset management unit will focus on money managers, hedge funds and private equity companies; market abuse will target complex manipulation schemes by institutional traders, market professionals and others; structured and new products will tackle credit default swaps, securitizations and other products; foreign corrupt practices will concentrate on violations of the law prohibiting U.S. companies from bribing foreign officials; and municipal securities and public pensions. Each unit will be staffed by people with specific expertise in these areas, including recruits from the private sector. "We want them engaged in the constant study of an industry, market, products or transactions," Khuzami says.

In a bid to address critics of the SEC’s past failure to uncoverBernard Madoff’s multibillion-dollar fraud despite repeated warnings, Khuzami has also created an Office of Market Intelligence to handle tips, complaints and referrals the agency receives.

Khuzami acknowledges that the SEC can’t prevent all scandals. "Sadly, there will always be people who prey on and exploit others," he says. But he hopes his actions will act as a deterrent to fraud. "If I give a speech and 20 institutions change their behavior and redress their practices, it protects investors," he explains.