SEC's New Top Cop Faces Challenges

By SARAH N. LYNCH

WASHINGTON -- Former federal prosecutor Robert Khuzami starts Monday as the Securities and Exchange Commission's top enforcement chief, where he will embark on the challenging task of rebuilding investors' confidence in the division.

While working at the U.S. Attorney's Office in Manhattan, he helped convict Patrick Bennett, who was sentenced to 30 years in prison for running a Ponzi scheme that caused investors to lose $700 million.

In addition to prosecuting securities fraudsters and alleged terrorists, Mr. Khuzami, a Republican, most recently worked as general counsel for Deutsche Bank AG, giving him a different viewpoint of the securities industry.

"I thought Khuzami had precisely the correct sort of background for a job like this in the climate we're in," said William McLucas, a former SEC enforcement director who is now a partner at WilmerHale.

"He is a pretty tough guy. He's got enormous experience on the government side of the table. He is very experienced and sophisticated as a litigation counsel sitting on the defense side of the table," he added.

Mr. Khuzami will succeed Enforcement Director Linda Thomsen, who announced her resignation shortly after an appearance at a scathing congressional hearing in which lawmakers slammed the agency for its failures to detect Bernard Madoff's $65 billion Ponzi scheme.

Former SEC enforcement officials say it is no coincidence that the SEC's new chairman, Mary Schapiro, opted to recruit an ex-federal prosecutor to fill the enforcement division's top post.

The amount of things on Mr. Khuzami's agenda will be considerable. Among the changes the SEC is considering for the division include whether to reorganize it into units that focus on a particular subject matter. There are also efforts under way to revamp the way the agency processes complaints and whistle blower tips, improve its technology to keep pace with market changes, install a permanent New York regional office director and reprioritize the division's case load.

"[Khuzami] is coming with a new commitment to the SEC's focus on bringing the most important cases, the most meaningful cases, in the quickest time possible in order to protect investors more effectively," Ms. Schapiro said at a hearing Thursday.

The effort to speed up the enforcement division's ability to bring cases began even before Mr. Khuzami was hired. In her first announcement as chairman, Ms. Schapiro eliminated a two-year pilot program requiring enforcement staff to obtain permission from the commissioners before negotiating civil penalties against corporations.

In addition, Ms. Schapiro also streamlined the process for enforcement staff to obtain subpoenas. Instead of asking permission from all five commissioners to obtain a subpoena, staff can now in certain routine cases get a more immediate green light from one commissioner acting as a "duty officer" on behalf of the entire commission.

The remaining commissioners then sign off at a later date.

"If you remember back when Harvey Pitt was chairman, there was a phrase 'real-time enforcement' coined, and I think you'll see a lot more of that," said Barry Goldsmith, a partner at Gibson, Dunn & Crutcher who once served as the SEC's chief litigation counsel.

"The Commission has a process that it must go through in order to bring enforcement actions and that is a good thing. Obviously, there are due process and fairness components, but within that I think you'll see a speeding up of cases. Cases that are brought years and years after the events certainly don't have the impact and may not have the benefit to investors."

Commissioner Luis Aguilar said he wants to see the process by which enforcement officials obtain subpoenas streamlined even more. One possibility he'd like to explore is allowing senior enforcement officials to approve subpoena requests on routine cases instead of commissioners.

"It allows them to take action a little more quickly," Mr. Aguilar said, noting that there are still time lags in approving requests with the duty officer approach. "It will keep my office from having a stack of duty officer reports that have already been approved."

Steve Cutler, a former SEC enforcement division director, said he thinks the best advice Mr. Khuzami can receive as he starts his new job is not to worry so much about the number of cases the divisions brings and to focus more on the quality of the cases.

"It's focusing on the right things at the right times and not being afraid to change the way things are done," Mr. Cutler said. "No one has a monopoly on wisdom and one of the nice things about coming from the outside is Rob will bring a fresh perspective to what the agency does and how it does it."

Write to Sarah N. Lynch at sarah.lynch@dowjones.com