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« Bloomberg Interview With Mary Schapiro | Main | VIDEO: Insane Battle Over Phones At Walmart Black Friday »
Monday
Nov262012

BUSTED: Robert Khuzami SEC Enforcement Chief

Flashback - Jan. 2011.

Keep in mind as you read that Citigroup was hiding - lying about - $40 billion of sub-prime exposure, and the CFO at the time, Gary Crittenden was fined a paltry $100k for his role in this blatant rape of federal securities law.  

Khuzami who once promised to be a tough cop on the beat, allegedly broke protocol, held a secret meeting with his good friend - counsel for Citi - then instructed SEC staff to go easy on Crittenden and Arthur Tildesley, the lying curbskank at the helm of Citi investor relations.

---

The U.S. Securities and Exchange Commission’s internal watchdog is reviewing an allegation that Robert Khuzami, the agency’s top enforcement official, gave preferential treatment to Citigroup Inc. executives in the agency’s $75 million settlement with the firm in July.

  • Inspector General H. David Kotz opened the probe after a request from U.S. Senator Charles Grassley, an Iowa Republican, who forwarded an unsigned letter making the allegation.  Khuzami told his staff to soften claims against two executives after conferring with a lawyer representing the bank, according to the letter.

Citigroup agreed in July to pay $75 million to resolve SEC claims that the bank understated investments linked to subprime mortgages as the housing crisis unfolded.  Gary Crittenden, who stepped down as chief financial officer in 2009, and Arthur Tildesley, the New York-based bank’s former head of investor relations, agreed to pay $100,000 and $80,000, respectively, to resolve related claims.

The agency’s settlement was questioned in August by U.S. District Judge Ellen Huvelle, who eventually approved it. She asked SEC lawyers why the agency hadn’t pursued executives more aggressively.

  • “There has been nothing here that is being done to assure anyone that senior management who’s responsible, whatever level of culpability you’re talking about, is going to have any pain here,” Huvelle said.
  • According to the letter, the SEC’s staff was prepared to file fraud claims against both individuals. Khuzami ordered his staff to drop the claims after holding a “secret conversation, without telling the staff, with a prominent defense lawyer who is a good friend” of his and “who was counsel for the company, not the individuals affected,” according to a copy of the letter reviewed by Bloomberg News.

Prince and Rubin

  • The agency also said in a filing that former Chief Executive Officer Charles O. “Chuck” Prince and former chairman Robert Rubin were among executives who knew 2007 losses were mounting on mortgage assets that Citigroup was faulted for not disclosing.

Continue reading at Bloomberg...

---

More detail from Columbia Journalism Review

Link - CJR

And American Lawyer got hold of the actual fax and notes that it “contains purported inside details about the SEC’s negotiations with Citi that suggest it wasn’t written by a random disgruntled Iowan, but by someone with knowledge of the SEC’s handling of the Citi case.”

Here’s the text of the fax, which is awfully specific and ought to be very easy to prove or disprove:

In the Citigroup investigation involving hiding/failing to disclose more than $50 billion of subprime securities from investors, the [SEC] staff had negotiated a settlement with one individual that included fraud charges and was prepared to file contested 10(b) fraud charges against another individual,” the fax states. “But just before the staff’s recommendation was presented to the commissioners, enforcement director Robert Khuzami had a secret conversation, without telling the staff, with a prominent defense lawyer who is a good friend of Khuzami’s and a fellow former (Southern District of New York) alum, and who was counsel for the company.

American Lawyer helpfully points out who represented Citi in the SEC settlement talks and which of them also worked at the SDNY.

Citi was represented in the SEC case by Brad Karp of Paul, Weiss, Rifkind, Wharton & Garrison and Lawrence Pedowitz of Wachtell, Lipton, Rosen & Katz, among other lawyers from the two firms. John Carroll of Skadden, Arps, Slate, Meagher & Flom represented Crittenden. Tildesley had Simpson Thacher & Bartlett’s Mark Stein. Karp, who is not a former Manhattan federal prosecutor, declined to comment Tuesday; Pedowitz, Carroll, and Stein (who are all former SDNY assistant U.S. attorneys) didn’t return our calls.

Khuzami is a former prosecutor, but he’s also yet another in that line of Obama’s Wall Street-friendly appointments. Khuzami came over from the German giant Deutsche Bank. So this story also has a revolving-door angle. Yves Smith on that:

This is why prominent lawyers and other high level fixers earn as much as they do. They have ongoing personal relationships with influential figures and can pull strings when they need to. But how a seasoned and supposedly tough prosecutor like Khuzami ever thought this settlement would pass muster is beyond me. Did he really think no one would notice or care, that this was a sufficiently old matter that any objections to it would die down quickly?

Remember, Khuzami and the SEC settled with Goldman Sachs, too, despite having a good case against the firm. And it’s worth emphasizing that Khuzami, as the WSJ put it in a headline in April, “Oversaw Deutsche CDOs” before he jumped to the SEC:

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.

Deutsche Bank has faced allegations of inadequate disclosure over its creation of CDOs.

---

Issa v. Khuzami:

Issa questions Khuzami about the Merrill Lynch/Bank of America bailout.

Further reading:

http://www.nytimes.com/2010/02/09/business/09sec.html

 

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Reader Comments (27)

The SEC’s Khuzami and That Citigroup Settlement

An anonymous letter adds to questions about a wrist slap

http://www.cjr.org/the_audit/circling_back_on_that_odd_sec.php
Jan 13, 2011 at 3:04 AM | Registered CommenterDailyBail
S.E.C. Enforcers Focus on Avoiding Madoff Repeat

http://www.nytimes.com/2010/02/09/business/09sec.html
Jan 13, 2011 at 3:05 AM | Registered CommenterDailyBail
Jan 13, 2011 at 3:05 AM | Registered CommenterDailyBail
« Introducing The Utah Sound Money Act - An Idea Whose Time Has Come »

http://dailybail.com/home/introducing-the-utah-sound-money-act-an-idea-whose-time-has.html
Jan 13, 2011 at 4:05 AM | Registered CommenterDailyBail
Nice one DB!

Congressional Perjury Is Now A Sport

http://market-ticker.org/akcs-www?post=177177

[snip]

After all, lying to Congress does appear to be a new and rather-novel American sport, and the so-called compulsion to "testify" before Congress has in fact turned into both a national disgrace and an international joke.
Jan 13, 2011 at 9:26 AM | Unregistered Commenterjohn
Cooky Harry Markopoulous was right and wrong. The SEC is overlawyered and incompetent (right), although he said good things about Khuzami in the NYT (wrong).

The joke is not only is the SEC incompetent for the most part, but it appears they are as crooked as the crooks they attempt to catch...the revolving door spins crooks in/out of that place. Why should we be surprised, however? Wall street owns our Govnmt and the SEC is just a part of it...
Jan 13, 2011 at 1:58 PM | Unregistered Commenterjosie
I had high hopes for Khuz...his resume looked impressive. But even at the time they were trumping how he made so many arrests, I coulcn't find any info on how many convictions came from those arrests.

I think it's time to add Robert Khuzami to the growing list of loogies hocked in the American people's eyes.
Jan 13, 2011 at 4:04 PM | Unregistered Commentermark mchugh
Its just part of the game I think. Khuzami either didn't play according to the (insider) rules or he wasn't smart enough to cover his own ass. Of course he did something wrong. Of course he will go down....but softly because he still knows too much. They're all crooks, even Grassley. Its just that they cover their asses better. Crooks like Grassley are better at the game and have been in the game so long that they can never fail at covering their tracks on their deviant deeds.

The whole thing sucks as usual.

I don't know about you guys, but I'm sick and tired of reading about this stuff on a daily basis. Corruption has become the readily accepted commodity. I'm surprised there's not an ETF for it on the market. Everyday, without fail, there is no justice and more injustices brought to light with little to no recourse for the American people. Its gotten to the point of ridiculousness.

That's why I getting ready to head to the door. I have watched this fiasco for 8 years and have worked my hardest to inform people through various forums and volunteer my special skills. But its like a runaway train heading for a washed-out bridge. At this point, your best bet is to jump off the train. I'm no Steven Seagal or Chuck Norris. I cannot fight this anymore than the next guy. So why bother are my current sentiments. I'm sure they'll fix it without me cause they have in the past.
Jan 13, 2011 at 10:43 PM | Unregistered Commenterdogismyth
I'm with you dogismyth. I've concluded that nothing's ever going to be done to fix the system because the one's rigging the system are reaping huge benefits. It will all collapse someday. I'm devoting more and more time to survival, because I've given up on justice.

I still believe buying physical silver is the best place for the common man to exploit the corruption, beyond that, it's time to start stocking things for your own survival. The corruption in the US is causing food riots in other parts of the world now. It's only a matter of time before they start here.

I appreciate all DB's efforts to expose the corruption, but without anything resembling a justice system for these people, it is not time well spent.
Jan 14, 2011 at 10:46 AM | Unregistered Commentermark mchugh
Thanks for the pep talk, Mark.

By the way, did you ever get "justice" from the SEC for blowing the whistle on Mozilo?
Jan 14, 2011 at 11:04 AM | Registered CommenterDr. Pitchfork
As Gomp likes to say, "the law defends the plunderer." Plan accordingly.

No, but I did get some explanations. Get this: "Financial Reform" voided the SECs bounty sytem. I went to a lawyer, he said he thought it was a losing battle.

I can, and probably should reapply, the new laws give me 180 days. But we all know they're never going to give me anything.
Jan 14, 2011 at 2:26 PM | Unregistered Commentermark mchugh
"Financial Reform" voided the SECs bounty sytem.
---

What?! Clearly this was to avoid massive payouts, no? That's really weird. Not that they were targeting you directly or anything, but that someone even thought, "Hey, we really ought to get rid of the bounty system at the SEC, so why don't we slip that into the Reform bill?"

It just gets weirder and weirderer.
Jan 14, 2011 at 2:57 PM | Registered CommenterDr. Pitchfork
Yep,

They specify that know they want board members to rat each other out. They specify that that don't pay bounties on info "publicly available." Which is to say "fuck off, peasants - we'll do the thinnin' around here."

Mozilo looted Countrywide in broad daylight - and hardly anyone complained.

Same thing with Enron - only a few people ever challenged their balance sheet.

We've discussed before - the Treasury auctions are fraud and the info proving that is publicly available. Few people care to believe it and NOBODY anywhere in the government is willing to investigate it (cough coughronpaul).
Jan 14, 2011 at 3:44 PM | Unregistered Commentermark mchugh
This is America, and there is nothing wrong with the "just-us" system.
Jan 14, 2011 at 6:03 PM | Unregistered CommenterS. Gompers
"It just gets weirder and weirderer. "

It is only weird if you believe in the tooth fairy, or that all people truly have whats best for America in their hearts.
Jan 14, 2011 at 6:08 PM | Unregistered CommenterS. Gompers
It is only weird if you believe in the tooth fairy, or that all people truly have whats best for America in their hearts.
---
Touche. Maybe it's just getting worse and worser, which isn't weird in itself, but it's weird how much worser it's gotten in just the last few years. Certainly since 9/11. But it's just accelerated in the last two or three. (I know, preaching to the choir here...)
Jan 14, 2011 at 6:16 PM | Registered CommenterDr. Pitchfork
Actually the acceleration has been fairly steady since 9-11, most people just were not seeing it yet. Thus giving the perception of only recently beginning.
Jan 14, 2011 at 6:27 PM | Unregistered CommenterS. Gompers
When I look back, Watergate seems downright trivial. Now I'm wondering what an elite has to do to jail. Is there anything they can't get away with?

I think you'll appreciate this Gomp (If you haven't heard it already):

There was a Chemistry professor in a large college that had some exchange students in the class. One day while the class was in the lab the Prof noticed one young man (exchange student) who kept rubbing his back and stretching as if his back hurt. The professor asked the young man what was the matter. The student told him he had a bullet lodged in his back. He had been shot while fighting communists in his native country who were trying to overthrow his country’s government and install a new communist government. In the midst of his story he looked at the professor and asked a strange question.


He asked, ‘ Do you know how to catch wild pigs?’ The professor thought it was a joke and asked for the punch line. The young man said this was no joke. ‘You catch wild pigs by finding a suitable place in the woods and putting corn on the ground. The pigs find it and begin to come everyday to eat the free corn. When they are used to coming every day, you put a fence down one side of the place where they are used to coming. When they get used to the fence, they begin to eat the corn again and you put up another side of the fence. They get used to that and start to eat again. You continue until you have all four sides of the fence up with a gate in the last side. The pigs, who are used to the free corn, start to come through the gate to eat, you slam the gate on them and catch the whole herd. Suddenly the wild pigs have lost their freedom. They run around and around inside the fence, but they are caught. Soon they go back to eating the free corn. They are so used to it that they have forgotten how To forage in the woods for themselves, so they accept their captivity.

The young man then told the professor that is exactly what he sees happening to America. The government keeps pushing us toward Communism/Socialism and keeps spreading the free corn out in the form of programs such as supplemental income, tax credit for unearned income, tobacco subsidies, dairy subsidies, payments not to plant crops (CRP), welfare, medicine, drugs, etc. while we continually lose our freedoms- just a little at a time.

One should always remember ‘There is no such thing as a free Lunch! Also, a politician will never provide a service for you cheaper than you can do it yourself.

from:http://democratequalssocialist.wordpress.com/2008/01/12/how-to-catch-wild-pigs-2/ but I've seen it elsewhere as well.
Jan 14, 2011 at 8:29 PM | Unregistered Commentermark mchugh
Yes Mark, it is a good story that has been circulating for quite some time.
Jan 15, 2011 at 1:59 AM | Unregistered CommenterS. Gompers
Mozilo, the tan man. Just look at his trades for the past 2-3 years before he left. He was damn near cashing out every single day. Apparently, the SEC was blindsighted again along with the federal reserve. All the corruption, ponzi schemes, back-door trading....and yet not one of our government specialists saw it coming or had the gumption to start an investigation or inquiry?

Its all by design. There will not be any justice because everyone at the top is complicit. And the courts have been stacked. And if you go against the insider rules, you're dead, liquidated or severely handicapped career wise. So its a Catch 22. Its no different than the TV anchors. They no they are spouting lies and bullshit. But they want to keep their 6 figure job with handsome benefits. And since all major media is owned or controlled by a handful of elitists, the policy is in force everywhere.

But people will continue on to be treated like cattle without realizing it or letting it bother them. Most could care less about the less fortunate. everyone is talking their book or watching their own backs. There are a few good folks out there, but you'll never hear about them because they're to busy taking care of others through their own sacrifice. The corruption is everywhere but it started and is coming from THE TOP DOWN. So good god man, what should we do about that? They are now bullshitting us about having a public 9-11 trial because they (Bloomberg - billionaire bitch) say its too expensive and it may be a security concern. So they are now thinking a military tribunal. If they take that away from us, I hope people go apeshit on their ass. Enough is enough. The PTB needs to be no more.

Shit, I could go on for hours on this bullshit. It ruins my every day. And its more disheartening to realize that maybe 2 or 3 in 10 really knows what is going on or gives a hoot. Disgraceful, frustrating and endless.

see ya;ll soon. thanks for listening.
Jan 15, 2011 at 3:41 PM | Unregistered Commenterdogismyth
911 ✡ ✈ ▌▌
Jan 16, 2011 at 9:03 PM | Unregistered CommenterTim Hesler
Unposted Inspector General Reports Showcase SEC Misconduct
By Michael Smallberg

http://pogoblog.typepad.com/pogo/2011/01/un-posted-inspector-general-reports-showcase-sec-misconduct.html

A few months ago, we questioned why many of the investigative reports issued by the Securities and Exchange Commission (SEC) Office of Inspector General (OIG) are nowhere to be found on the agency or the OIG’s website.

Since then, we’ve obtained many of these unposted reports, which were released to POGO and others through the Freedom of Information Act (FOIA), but are still not available on the websites of the SEC or OIG. We’ve made these reports searchable and posted them on our own website as a resource to the public.

(Hat tip to John Young at Cryptome.org)
Jan 22, 2011 at 9:07 AM | Unregistered Commenterjohn
THIS IS A MUST SEE AND FOLLOW.

Unposted Inspector General Reports Showcase SEC Misconduct

http://pogoblog.typepad.com/pogo/2011/01/un-posted-inspector-general-reports-showcase-sec-misconduct.html

[snip]

To be sure, some of the OIG’s investigations were previously disclosed by reporters and Members of Congress, especially Senator Charles Grassley (R-IA), and the OIG regularly summarizes its investigative work in semiannual reports to Congress. But since the reports are still conspicuously absent from the SEC’s website, we thought it would be handy to compile them in one place.
Jan 22, 2011 at 9:27 AM | Unregistered Commenterjohn
All these criminals ,those on trial and those holding court still have to live in this country and when the SHTF they will all be held accountable for their evil deeds by the people in the streets. They think they are above the law ,maybe so, but when the law that they have helped to trash is no more then they will be tried by the peoples scorn...so be it...good will crush evil...in the end...
Jan 22, 2011 at 5:36 PM | Unregistered Commenterdan
On September 27, 2011, the SEC's Inspector General issued a detailed report reflecting an extensive investigation into the anonymous allegations raised about the Citigroup settlement. The IG concluded that there was "no evidence" that Khuzami had an unusually close relationship with the defense counsel, or that "any decision was made based upon any friendship." The IG found that Khuzami made "significant efforts" to keep the Enforcement staff informed about the status of the matter, and "considerable efforts" to allow them to express their views on the case. The IG concluded that conversations with defense counsel "did not result in any secret deal."
Jan 7, 2012 at 2:07 PM | Unregistered Commenterformerausa
Hello Daily Bail Folks

I know , you folks hate me for what ever reason but NETFLIX FRAUD loot documentary will shock the Nation and unleash a revolution. Please contact me ASAP. We must fight back and I have taken major threats from S.E.C. criminal Gang led by Mary Schapiro/Robert Khuzami

Sincerely

Ken
408-890-6013
Jan 15, 2013 at 12:22 PM | Unregistered CommenterKen

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