Feb. 19 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman Mary Schapiro named Robert Khuzami, a former prosecutor of white-collar criminals and terrorists, her enforcement chief as she tries to restore confidence in the agency’s ability to police financial markets.

Khuzami, Deutsche Bank AG’s general counsel for the Americas, was appointed today to head the SEC’s biggest division, the agency said in a statement. No start date has been set, SEC spokesman John Nester said. Linda Thomsen, the unit’s chief since 2005, said Feb. 9 she plans to return to private practice.

“Throughout his career, Rob has demonstrated an unwavering commitment to prosecuting wrongdoers and protecting citizens,” Schapiro said in the statement. “As a former federal prosecutor, Rob is well-suited to lead the SEC’s Division of Enforcement as we continue to crack down on those who would betray the trust of investors.”

Khuzami, 52, is joining an agency that’s under fire from investors and lawmakers for missing Bernard Madoff’s alleged $50 billion Ponzi scheme. Former colleagues and legal opponents describe him as a tough attorney and public servant who keeps calm under pressure.

“People on Wall Street better watch out,” said Anthony Ricco, a New York lawyer who represented a defendant Khuzami helped convict in a trial connected to the 1993 bombing of the World Trade Center. “He is a person who really believes in the public good, and those people often make judgments that make Wall Street cringe.”

‘Financial Suffering’

In today’s SEC statement, Khuzami said he will “relentlessly pursue and bring to justice those whose misconduct infects our markets, corrodes investor confidence and has caused so much financial suffering.”

He spent 11 years at the U.S. Attorney’s Office for the Southern District of New York, which covers Manhattan. He focused on terrorism cases such as the plot by Omar Abdel-Rahman, who is known as the blind sheik, and others to blow up New York landmarks. Khuzami later headed that office’s Securities and Commodities Fraud Task Force for three years.

In 2000, Khuzami helped convict Patrick Bennett, the chief financial officer of Bennett Funding Group Inc., and other people in an equipment-leasing fraud. Bennett was sentenced to 22 years in prison.

“He always had really good judgment about bringing cases, and that’s going to be helpful to the SEC,” said Christopher Clark, a partner at Dewey & LeBoeuf LLP in New York who worked with Khuzami as a prosecutor. “He knew what cases weren’t worth bringing because they were weak or insignificant and which cases to go after for general deterrence purposes.”

Highest Citation

In the 1990s, Khuzami received the Justice Department’s highest citation, the Attorney General’s Award for Exceptional Service, as well as the Federal Law Enforcement Foundation’s Federal Prosecutor Award, the SEC said. The New York City bar association granted him the Henry L. Stimson award for outstanding public service in 2001.

The next year, he took a job at Deutsche Bank in New York, where he supervised more than 100 lawyers, the SEC said.

Khuzami’s securities firm ties won’t lead him to go soft on Wall Street, said Roger Stavis, a New York attorney who also represented a defendant in the World Trade Center case.

He will always be “identified as a former Southern District” attorney, said Stavis, a senior partner at Gallet, Dreyer & Berkey LLP in New York. “It travels with you. You can work on Wall Street but you are not of Wall Street.”

Giuliani, Fitzgerald

Southern District alumni include former New York City Mayor Rudolph Giuliani and U.S. Attorney Patrick Fitzgerald, who in December accused then-Illinois Governor Rod Blagojevich of trying to sell the U.S. Senate seat vacated by President Barack Obama and earlier probed the Bush administration over the leak of a Central Intelligence Agency official’s name to reporters.

Fitzgerald and Khuzami worked under former Assistant U.S. Attorney Andrew McCarthy in prosecuting Abdel-Rahman and his co- conspirators. Stavis said one of his lasting memories of the three men is that they showed up at the funeral of his father, who died during the trial.

“Even though we were on opposite sides, we worked very closely together,” Stavis said.

Madoff was arrested Dec. 11 after allegedly admitting his investment advisory business was “one big lie.” Congress has held three hearings to examine the case, and lawmakers on Feb. 4 assailed Thomsen, 54, and other agency officials for declining to discuss why the agency didn’t uncover Madoff’s scheme after repeated warnings by former money manager Harry Markopolos.

Political Spectrum

Schapiro, an independent appointed by Democrat Obama, took over the SEC last month and on Feb. 6 announced steps to speed up enforcement cases. The selection of Khuzami, a Republican, may reflect willingness to work across the political spectrum.

Khuzami spoke at the 2004 Republican National Convention in New York, encouraging Americans to re-elect then President George W. Bush to “protect both our lives and our liberties.”

He also contributed $2,300 to Arizona Senator John McCain’s presidential campaign, according to Federal Election Commission records. Obama defeated McCain in the November election.

Deutsche Bank skirted the worst of the U.S. subprime mortgage crash by short-selling bonds that contributed to more than $1 trillion of losses and writedowns at the world’s largest financial companies.

The Frankfurt-based bank has booked about 9.3 billion euros in markdowns since the U.S. subprime mortgage market collapsed in 2007. New York-based Citigroup Inc. has had $85 billion of markdowns, according to data compiled by Bloomberg.

To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net

Last Updated: February 19, 2009 15:17 EST