Robert Khuzami is the new head of enforcement for the US Securities and Exchange Commission.
SEC chief should clean up his own back yard
Robert Khuzami seems to be a man whose time has come. The new head of enforcement for the US Securities and Exchange Commission (SEC), effectively the top cop on Wall Street, was appointed to the job last February on a wave of crisis-fuelled demands that "something has to be done" to clean up after the American financial debacle. What a task presented to him: the biggest fraud in history, the Bernard Madoff scandal, as well as allegations of fraud, false accounting and market manipulation at the highest levels of US capitalism - AIG, Bank of America, General Electric.
Mr Khuzami had an in-tray to daunt even the most enthusiastic righter of wrongs. Fortunately, his track record suggested he was just the man for the job. After a solid East Coast education in the US (universities of Rochester and Boston), he joined the office of the district attorney at the New York southern district, the one that has jurisdiction over Wall Street. There Mr Khuzami set a breath-taking pace in his campaign against perpetrators of white-collar crime. One of his notable scalps was Patrick Bennett who, until Madoff came along, held the record for the world's biggest Ponzi scheme. Bennett was given 30 years, although this was reduced on appeal. It was a significant victory for Mr Khuzami.
Although his focus was financial crime, it did not stop him taking the lead in the highest-profile US legal case of the 1990s - the prosecution of Omar Abdul Rahman and nine others over the World Trade Centre attack in 1993. They were given sentences ranging from 25 years to life. Another career-enhancing result for Mr Khuzami. As head of enforcement, he has brought a new vigour to the job. "A sense of urgency is critical," Mr Khuzami said recently, and he has already shown his own priorities by cutting through the SEC bureaucracy and creating special units to push investigations through with maximum speed.
He has also shown a sense of realism and an understanding of the limits to what can be achieved within the costly and time-wasting chicanery of the US legal system. Mr Khuzami is willing to do deals with alleged perpetrators, offering immunity and agreements to defer prosecutions in return for restitution of funds. New York observers agree he has made an impressive start in this demanding job. But I'm not sure the financial community in the Middle East would agree. Although it was probably only down-page news in the US, Mr Khuzami made top headlines in the Gulf by two high-profile moves against alleged insider dealing here.
One, against the Kuwaiti Hazem Khalid al Braikan, resulted in his apparent suicide last month. The other, against an Emirati national alleged to have traded shares in the US petrochemicals company Nova Chemicals, is still pending. But you have to ask yourself: why, with the wreckage of the US financial system sitting on his desk marked "urgent", should Mr Khuzami be directing his enormous legal fire power at the small-time alleged market manipulators of the Middle East?
This is not to belittle the seriousness of insider dealing as an offence. Trading on privileged information undermines the integrity of financial markets, especially in emerging regions such as the Gulf, where international investors are always ready to lay the charge that the locals have stitched things up among themselves. Insider dealing is a defect that must be eradicated if the region is to modernise its financial system.
But let's maintain a sense of proportion here. Even in the sophisticated markets of the west, such as London, insider dealing has been a criminal offence only for a few decades. It was traditionally regarded as the lubricant that oils the wheels of the trading system, and even now retains that same semi-benign image, the classic victimless crime. The British courts, at least, seem to have caught the same ambivalence: few insider-dealing prosecutions have been successful in the UK.
I doubt Mr Khuzami would agree with this rather libertarian view of financial markets. He is taking his job seriously, striving to stamp out financial crime wherever in the world it rears its head. Maybe the US authorities will soon declare war on global market abuse, in the same way as they declared wars on terror and drugs? Mr Khuzami must also have an eye on the internal politics of Washington, in which the SEC and the Federal Reserve are fighting a turf war over which agency has the lead role in cleaning up post-crisis America. A few quick successes against traders in the Gulf - always an easy target for Uncle Sam - would further enhance his, and the SEC's, credentials.
By all means he should go after the bad guys, whether they are in the Gulf or downtown Manhattan. But Mr Khuzami has much bigger targets back home. It would not do him, or his career, any good if he were to nab a couple of Arab insider traders while letting the next Bernie Madoff go undetected. firstname.lastname@example.org