WASHINGTON — In the painful months following Wall Street's flirt with financial ruin, no big player has yet been punished. Robert Khuzami's reputation now rests on Goldman Sachs becoming the first.
The enforcement chief at the Securities and Exchange Commission has spent his first year remaking his office, which was chock full of top managers, but light on investigators.
When Khuzami arrived last year, he inherited a demoralized agency, widely ridiculed as the most ineffectual of federal regulators. Faced with salary restrictions, the agency had promoted top-level people to administrative positions at a pace that left the agency top heavy and without enough cops on the beat.
Khuzami set out to change that, leaving top salaries in place but forcing those administrators out of desk jobs and back into investigations.
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His office has prosecuted private equity firms for alleged pay-to-play activity in the state of New York, and late last year brought a high-profile insider trading case against Galleon Management, a large hedge fund that invests on behalf of the ultra wealthy.
But that pales next to what is ahead for the SEC in taking on Wall Street's most influential and politically connected player.
"It is definitely one of the most ambitious cases they have brought and I think you have to hand it to them to pursue a case against a prominent defendant and in an area that requires a lot of homework on their part," said Bruce Carton, founder of the online journal Securities Docket, which focuses on securities law enforcement and legislation.
An SEC enforcement official in the mid-1990's, Carton said the Goldman case marks the first big test of Khuzami's new Structured and New Product Division, which focuses on complex financial deals.
"They are implying there are more (prosecutions) to come," he said.
When he was named to head the enforcement division, Khuzami's nomination raised eyebrows because his most recent position was general counsel for the Americas division of global investment firm Deutsche Bank, which happened to do lots of business with Goldman Sachs.
Much of Khuzami's career, however, was spent as a federal prosecutor, eleven years doing just that in the U.S. Attorney's Office for the Southern District of New York. There, he headed the securities and fraud task force.
The focus on Khuzami personally is intense, given the SEC's past failure to catch the Ponzi scheme of Bernard Madoff and failure to successfully prosecute Bank of America leaders for failing to disclose losses at Merrill Lynch, the investment bank it bought on the cheap.
"It's a game changer for the SEC," Jacob Zamansky, a partner in Zamansky & Associates, told CNBC television late Friday. "They blew it on Madoff, they blew it with the Bank of America case. They need to show they can go up against the Goldman Sachs 'dream team' of lawyers."
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