May 112011
 

The number one question people ask me when they find out I write about the financial crisis is: “How come nobody has gone to jail?”

I think I have found an explanation. His name is Robert Khuzami and he works as chief of the Securities and Exchange Commission’s enforcement division.

He is not the literal reason. SEC enforcement is civil, not criminal. So he’s not responsible for putting people in prison.

But focusing on Khuzami puts into sharp focus the conflicts at the heart of the government’s efforts to regulate and hold accountable the big banks.

Khuzami is a former federal prosecutor. But he came to the SEC from a high-profile position he took after his stint as a lawman: he served as general counsel to Deutsch Bank, one of the world’s largest investment banks, which had a massive business in the securitized mortgage loans, and was the recipient of nearly $12 billion in “backdoor bailout” federal funds funneled through AIG.

The Wall Street Journal reported that Khuzami was the first SEC enforcement chief to come directly from a big bank. He is one in a long line of Obama economic appointments with strong ties to the financial industry, who either worked for the banks directly or in their interests by favoring deregulation that was one of the major causes of the economic collapse.

Now Khuzami’s former employer, Deutsch Bank, is in hot water with the feds, who sued the bank earlier this month alleging that the “bank committed fraud and padded its pockets with undeserved income as it repeatedly lied so it could benefit from a government program that insured mortgages,” Business Week reported.

For the SEC, it’s all kosher because its stringent recusal policy assures that Khuzami won’t work on any Deutsche Bank cases.

Remember that Khuzami was not just a guy punching a clock. He was the bank’s general counsel, so he supervised legal issues for the firm.

So here was a former federal prosecutor who, in the midst of the go-go real estate boom, apparently thought it was OK for his bank to commit mortgage fraud. Zero Hedge dug up his financial disclosure statement, which reveals he was compensated nearly $4 million in salary and bonuses between 2006 and 2009, and may lose money if Deutsche Bank suffers as a result of the government’s lawsuit.

The president and the SEC, knowing what kind of mischief the too big to fail banks were engaged in during the boom, and how Khuzami had profited from it, thought it was a terrific idea to appoint somebody like him to go after his former cronies.

Khuzami’s tenure at SEC has been marred by accusations that he gave two Citibank executives preferential treatment in agreeing to drop charges against them after he met secretly with their lawyer. In January, the SEC’s inspector general said it was investigating the matter.

Is there no one but former bankers available to work in the financial sector? The president, with $1 billion to raise to fund his reelection effort, has been unwilling to dig into the fraud at the heart of the financial collapse. Until he does, the economic recovery will be built on quicksand.

 

About Martin Berg

Martin Berg, WheresOurMoney.org editor, is a veteran journalist.

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