It’s at least easy to understand the logic, however icky, of the beat sweetener, that staple of news coverage that gives a new official a puffy profile in the hope that they’ll become a source.
But beats me why you’d run a beat sweetener-like story pegged to an official’s exit. What do you call that? A thank-you note?
That’s what The New York Times essentially does in reporting that Robert Khuzami is stepping down after four years as the SEC’s enforcement chief. This is an access special, a scoop with Khuzami’s cooperation, replete with a picture of him in “thinking tough guy” pose in his office—one that’s reminiscent of the “tough guy with posse” pose atop the last NYT puff piece on him.
We learn that Khuzami invited staffers to his family’s Christmas party, that his parents were ballroom dancers, that he put himself through college by washing dishes and stuff, and that he once yukked it up in a red-head wig singing an SEC version of “Annie.”
According to the NYT, Khuzami and his SEC office were by turns, “aggressive,” “reinvigorated,” “aggressive” again, “an imposing presence with a piercing stare,” “aggressive” a third time, “opened five units that tracked some of the darkest corners of finance,” that his “tactics appeared to bear fruit,” that “notched a record number of actions,” and that “even Judge Rakoff credits Mr. Khuzami with a rapid turnaround of the enforcement division,” which mitigates the perfunctory nods to the many critics of Khuzami and Obama’s SEC.
Khuzami, recall, was general counsel for the Americas for Deutsche Bank during the High Bubble era. Deutsche was one of the most notorious CDO churners and Khuzami “worked with lawyers who advised on the CDOs issued by the German bank and how details about them should be disclosed to investors,” The Wall Street Journal reported in 2010. CDOs were at the root of the financial crisis, but the Obama administration hired a guy who oversaw them to be his enforcer. That was an untenable conflict of interest from the start.
And so, you have settlements where banks fork over cash but neither “admit nor deny” guilt. You have banks sued for fraud while the bankers who committed the fraud skate. You have bizarrely weak settlements with banks caught red-handed cooking the books (and SEC whistleblowers later alleging cronyism betwen Khuzami and a Citigroup pal in the deal, though the IG later cleared him). You have settlements where banks promise not to break the law again, despite having already repeatedly broken the same promise in their many previous settlements.
The Times touts Khuzami’s record number of enforcement actions. Well, fine. But his tenure came after the greatest financial clusterfuck of all time. Grinnin’ Chris Cox might have set a record under those circumstances.
And then there’s Deutsche, home of Greg Lippmann and the giant CDO machine. It’s worth noting that Deutsche has not come under the SEC’s toy hammer, unlike Goldman and Citi. Khuzami has recused himself from Deutsche investigations, of course but read Yves Smith on that:
Any serious investigation of CDO bad practices would implicate Deutsche Bank, and presumably, Khuzami. Why was a Goldman Abacus trade probed, and not deals from Deutsche Bank’s similar CDO program, Start? Khuzami simply can’t afford to dig too deeply in this toxic terrain; questions would correctly be raised as to why Deutsche was not being scrutinized similarly. And recusing himself would be insufficient. Do you really think staffers are sufficiently inattentive of the politics so as to pursue investigations aggressively that might damage the head of their unit?
Good questions all. Read her whole piece as an antidote to the hagiography.
It’s a cold fact that the perpetrators of the greatest financial crisis of all time are almost all going to get away scot free, and folks like Khuzami are the reason.Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at firstname.lastname@example.org. Follow him on Twitter at @ryanchittum. Tags: CDOs, Deutsche Bank, Robert Khuzami, Securities and Exchange Commission, settlements