Last week, U.S. Attorney General Jeff Sessions named Geoffrey S. Berman as interim U.S. Attorney for the Southern District of New York. Mr. Berman’s appointment was reportedly supported by President Trump’s son-in-law Jared Kushner.
This high profile office is responsible for Wall Street enforcement and has traditionally been one of the most aggressive pursuers of cases involving white-collar and Wall Street crime. It is also the office which will have purview in investigating potential issues regarding President Trump’s businesses and those of his son-in-law.
In his new position, Mr. Berman has appointed Robert S. Khuzami as his Deputy United States Attorney for Manhattan. Mr. Khuzami, who led the enforcement division of the Securities and Exchange Commission (SEC) from 2009 till 2013 and then went on to join the law firm of Kirkland & Ellis. The question was raised that the Kirkland hiring could reignite, and it did, the “cozy relations between officials at the SEC and the companies they regulate.” The issue was that at Kirkland, Mr. Khuzami could represent some of the same companies the agency policed. No surprise, it continues to be what Washington and Wall Street do regardless of the conflicts of interest.
Mr. Berman thinks highly of Mr. Khuzami’s abilities and gives him high regard stating that he had been an “outstanding” Assistant United States Attorney in an earlier tenure in the office, “and he has since distinguished himself in further public service and in the private sector.”
Given his background, Mr. Khuzami could well become ”one of the country’s top financial watchdogs.” Yet there are issues. Many of them.
Mr. Berman’s appointment has not followed the traditional path of Senate nomination and confirmation, and thus it is only good for 120 days. It is already raising questions about his ability to act independently from President Trump’s administration as a member of President Donald Trump’s transition team and a partner of President Trump’s confidant Rudy Giuliani at the law firm Greenberg Traurig.
Senator Kirsten Gillibrand (D-NY) called Mr. Berman’s appointment “deeply disturbing considering the conflicts of interest inherent by his potential jurisdiction on matters that could affect the president personally.” She also pointed out press reports that President Trump had personally interviewed Mr. Berman, certainly a most unusual move.
This office oversees Wall Street and is the President’s hometown, both of which present questions and potentially tricky situations. It is also presently involved in several investigations potentially affecting President Trump, including one of Deutsche Bank AG, where Khuzami worked from 2002 to 2009 as general counsel of its Americas unit.
The bank is the subject of a long-running criminal probe by Manhattan prosecutors and the Justice Department into trades that U.S. authorities have said helped move some $10 billion out of Russia from 2011 to 2015. Would Mr. Berman have to recuse himself? And shouldn’t this have been considered prior to the appointment?
A couple of other points should be looked at. In June of 2010, while still at the SEC, Mr. Khuzami spoke on the phone with Mark Pomerantz, a partner at Paul, Weiss, Rifkind, Wharton & Garrison. The two had worked together as assistant U.S. attorneys in Manhattan in the 1990s. According to Mr. Pomerantz, he was partly responsible for Khuzami’s promotion to chief of the office’s securities unit.
But this wasn’t a social call. Mr. Pomerantz represented Citigroup, which had agreed to settle SEC allegations that it drastically underreported its subprime mortgage exposure going into the financial crisis.
The SEC was insisting at the time that Citi CFO Gary Crittenden face fraud charges for allegedly misleading investors. Citi was concerned that it would suffer collateral damage if Mr. Crittenden was in fact accused of fraud.
However, after the call, Mr. Khuzami backed a non-fraud settlement with Mr. Crittenden.
An anonymous source later tipped U.S Senator Grassley that Mr. Khuzami had the agency drop fraud charges “as a favor to his friends.” The investigation, which led to a 43-page report by the SEC’s Inspector General H. David Kotz cleared Mr. Khuzami of violating SEC guidelines or offering preferential treatment to Citi; however many of the pages in the report were heavily redacted before being made public. In fact the report shows just how close the enforcers at the SEC can be to their adversaries, the lawyers who defend Wall Street professionals and firms in agency probes.
The IG report did, however, criticize Mr. Khuzami for not having another SEC lawyer on the line, considering the sensitivity of the issues and the involvement of all parties.
There continue to be issues with how close the defenders at the SEC are with to their so-called adversaries – lawyers who they have worked and are friends with, which shows up time and again. And there are many questions and criticisms over Mr. Khuzami not holding Wall Street execs accountable for some of their demonstrated fraud.
Yet as I have said many times, “there is no accountability in banking or in government.” I told World Finance, there exists an “incestuous” revolving door relationship between Wall Street banks and their regulators. And the situation still prevails.
Mr. Khuzami did not change the playing field and life is still much the same at the SEC. In August of 2016, a high-profile whistleblower publicly attacked the commission’s prosecuting practices. Eric Ben-Artzi, a former Vice President of Risk Management at Deutsche Bank, made history by becoming the first whistleblower in the whistleblower reward program’s existence to turn down a monetary reward.
He rejected his part of the $8.25m reward offered by the SEC for his role in exposing improper accounting at Deutsche Bank. Ben-Artzi called the SEC’s investigation of Deutsche Bank “disappointing.” He argued that, by simply subjecting the bank to a $55m fine instead of prosecuting the individuals responsible for the crime, the SEC has allowed top executives at the banking giant to retire with “multimillion-dollar bonuses based on the misrepresentation of the bank’s balance sheet.”
“This goes beyond the typical revolving door story. In this case, top SEC lawyers had held senior posts at the bank, moving in and out of top positions at the regulator even as the investigations into malfeasance at Deutsche were ongoing,” Ben-Artzi explained.
And one of those referenced by Ben-Artzi was Robert Khuzami, who was appointed as Director of the SEC’s enforcement division in 2009, after spending seven years working as Deutsche Bank’s most senior lawyer in North America when Ben-Artzi was complaining about the accounting issues at Deutsche.
It does seem that in lieu of any real punishment for malfeasance for liable executives, the SEC instead focuses on reaching settlements with banks found guilty of misconduct.
In a previous article, I quoted reporters Pam Martens and Russ Martens as saying, “the smooth functioning of the American economy is based on citizen’s having confidence in the country’s leaders … No Federal agency has to date done more to drown investor consumer confidence than the crony Securities and Exchange Commission (SEC).”
So, it makes perfect sense to take the former head of the SEC enforcement division and place him in such a top-level position at the DOJ, where he will continue to rub shoulders with his cronies and mete out justice to his buddies?
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Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
