-- Robert Khuzami, the U.S. Securities and Exchange Commission enforcement chief who led the agency’s pursuit of financial crime after the credit crisis, said he would step down.
Khuzami said in a memo today announcing his departure that he would remain at the agency for about two weeks. SEC Chairman Elisse Walter hasn’t named a successor.
In a statement, Walter said his “leadership and bold ideas transformed and reinvigorated the enforcement program.”
Walter’s predecessor, Mary Schapiro, hired Khuzami shortly after she was appointed in 2009 to help restore the agency’s image after it was battered for missing Bernard L. Madoff’s Ponzi scheme. 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,” Khuzami said in his memo.
Still, his tenure has seen criticism from lawmakers, judges, investors and at least one current commissioner who have argued the agency 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, who presided over SEC cases against Citigroup Inc. (C) and Bank of America Corp., accused the agency of balking at bringing tough cases against high-ranking individuals in favor of reaching expedient settlements.
Commissioner Luis Aguilar, a Democrat, also expressed concern about the lack of financial-crisis cases against executives.
“The investing public has a right to expect that government regulators will continue to hold accountable those individuals responsible for misconduct -- and that includes those culpable at the top, not just the flunkies below,” Aguilar said in an October speech.
Khuzami, in his memo, dismissed much of the fault-finding as “often uninformed criticism” and praised the division’s lawyers for not letting it discourage them.
“It is a testament to your commitment and professionalism that you never permitted those distractions to become obstacles to excellence,” he said.
Khuzami, according to people familiar with the matter, has pushed for his deputy George Canellos to become the next head of the division.
Walter has been discussing who to name as Khuzami’s successor with the other commissioners, the people said. One issue that may become a sticking point is whether it would be appropriate for her to name a permanent, rather than an acting, enforcement director because it is unclear how long Walter will run the agency. Her term has already expired and she must leave by the end of the year unless she is renominated.
Under Khuzami, the SEC filed more than 150 cases related to the financial meltdown, including 65 actions against senior corporate officers, the agency said today. His investigators have taken aim at lenders who generated subprime mortgages as well as Wall Street traders and investment banks that bundled the home loans for investors.
He oversaw some of the biggest settlements in SEC history. Goldman Sachs Group Inc. (GS) agreed in July 2010 to pay $550 million over claims it misled investors about a mortgage-linked investment; Citigroup reached a $285 million settlement and JPMorgan Chase & Co. (JPM) 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 (DBK), Khuzami was a strong defender of the SEC’s enforcement record and argued 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. He also defended the agency’s policy of not requiring firms to admit wrongdoing when settling allegations, saying such a stance would lead to protracted litigation and drain the enforcement program of resources.
After arriving at the SEC in March 2009, Khuzami spent the first several months of his tenure reorganizing the division. The process started with “a top-to-bottom scrub” of its operations, he said in an August 2009 speech marking his first 100 days on the job. He likened the overhaul to changing tires on a moving car.
Aside from financial crisis investigations, Khuzami reoriented the enforcement division to take a more aggressive approach to identifying misconduct in new areas. The specialized units he formed are taking a deeper look at asset managers and using data-intensive analysis to root out market manipulation and insider trading.