Robert Khuzami made the big bucks as Deutsche Bank’s general counsel for the Americas during the subprime securitization orgy, which Deutsche’s American arm helped unleash with toxic instruments that would crush the economy and millions of homeowners and workers.
Then in 2008 a promising young candidate was elected to bring hope and change to the land amidst a financial crisis that threatened a second Great Depression. Presented with an historic opportunity to become a second FDR, Barack Obama went to work stocking his critical cabinet positions with folks like Tim Geithner (wholly captured by Wall Street), Mary Schapiro (Wall Street soft-touch self-regulator), Eric Holder and Lanny Breuer (partners at Covington & Burling, which repped big banks and mortgage companies), Larry Summers (Clinton-era deregulator, finance-industry multimillionaire).
Khuzami became the Obama SEC’s chief of enforcement.
If you really wanted truth and justice and all that from your SEC, you probably wouldn’t go for someone who “worked with lawyers (at Deutsche Bank) who advised on the CDOs issued by the German bank and how details about them should be disclosed to investors,” as The Wall Street Journal noted three years ago.
Okay, it worked with Joe Kennedy, but that was a different era.
As Yves Smith wrote in January when we were all wondering which Wall Street law firm Khuzami would end up at:
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?
You know the results of Khuzami’s tenure: A splashy half-billion-dollar deal with Goldman Sachs, a bunch of “neither admits nor denies the charges” settlements, banks sued for fraud with no bankers sued for fraud, and embarrassingly low settlements with the likes of Citigroup and Bank of America for slam-dunk frauds. Oh, and who could forget: soliciting promises from banks to not break a specific law again, even though they’d already promised the SEC repeatedly not to break that law again in previous settlements.
Now, the payoff: The New York Times reports that Kirkland & Ellis will give Khuzami a whopping $5 million a year to continue serving represent their corporate clients.
The Times gives Khuzami pretty favorable treatment yet again. Last time, it went overboard with the tough-guy superlatives. This time the NYT calls him “A Legal Bane of Wall Street,” which is darn near correctable.
If Khuzami had truly been a “bane of Wall Street,” he would not have been flooded with $5 million a year job offers by Wall Street. Does anyone think Neil Barofsky or Elizabeth Warren—who were truly banes of Wall Street—got multimillion-dollar-a-year offers from the Street after their tenures?
Read this Matt Stoller piece from last year:
The dirty secret of American politics is that, for most politicians, getting elected is just not that important. What matters is post-election employment. It’s all about staying in the elite political class, which means being respected in a dense network of corporate-funded think tanks, high-powered law firms, banks, defense contractors, prestigious universities, and corporations. If you run a campaign based on populist themes, that’s a threat to your post-election employment prospects… If you actually go after powerful interests while in office, then you better win, because if you don’t, you’ll have basically nowhere to go. And if you lose, but you were a team player, then you’ll have plenty of money and opportunity.
That’s as good a synopsis as I’ve seen on why the soft corruption of the revolving door and the sellout culture is so damaging.
Further reading:
The Times gives the SEC’s Khuzami a parting kiss. The enforcement chief still gets the “new sheriff in town” treatment.
The SEC’s Soft Touch For Repeat Offenders. NYT and Bloomberg show how often banks violate promises not to re-commit fraud.
The revolving door spins for Schapiro and Breuer. Former SEC and DOJ officials cash in.
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 rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.