Is The Criminal Case Against Goldman About To be Reopened, As Robert Khuzami's "Ethical" Reputation Lies In Ruins

Tyler Durden's picture

After a few days ago we described in detail the facts behind the ACA lawsuit against Goldman, we were left scratching our heads how it could be that the SEC could ever possibly scuttle this criminal case which was obviously a slam dunk through  court, and which based on the disclosures presented by ACA, is a blatant violation case of 10(b)-5 securities fraud and underwriter representation. We asked: did the SEC hide a key piece of the case against Goldman to fast track a settlement process? We concluded that even the SEC's otherwise completely inexperienced legal team should have been able to get this case through the finished line without the need to settle. Two developments today may allow us to postpone the head scratching for at least a bit. According to the FT, the Senate permanent subcommittee on investigations is about to issue a report which "will press the SEC to reopen its investigation into the bank." And in a completely separate report, we learn from Bloomberg that the SEC's top enforcement official, Robert Khuzami, who settled the SEC case with Goldman, is now being probed for his role in Citi's abrupt settlement over the summer. According to Bloomberg disclosures in a letter that served to open the probe "Khuzami ordered his
staff to drop the claims after holding a “secret conversation,
without telling the staff, with a prominent defense lawyer who
is a good friend” of his and “who was counsel for the company,
not the individuals affected.”
We hope readers are able to put two and two together, and ask: just why is Robert Khuzami, former General Counsel for Deutsche Bank, still pretending to represent investor interests, when he obviously has far more powerful (and rich) interests to answer to?

From the FT:

Goldman Sachs will come in for harsh criticism from an influential US Senate report into the financial crisis that will highlight alleged conflicts of interests in the bank’s dealings with clients, according to people familiar with the matter.

People familiar with the matter said the report from the Senate permanent subcommittee on investigations, which could be published by the end of the month, would renew pressure on Goldman by focusing on complex transactions similar to a deal involving a mortgage-linked security called Abacus.

The regulators alleged Goldman did not disclose to clients that a hedge fund eager to short the housing market had influenced the type of loans included in the security.

Senior Democrats hope the new report, which deals with Wall Street’s behaviour during the crisis but is believed to focus heavily on Goldman, will press the SEC to reopen its investigation into the bank.

The SEC settlement with Goldman infuriated some of the bank’s critics in Congress, who believed the case should have gone to court. Some of Goldman’s supporters, who believed the case had no merit, were also disappointed.

Which is where the Bloomberg story on Robert Khuzami's, who just happens to be Deutsche Bank general counsel, proclivity to settle SEC cases comes into play:

The U.S. Securities and Exchange Commission’s internal watchdog is reviewing an allegation that Robert Khuzami, the agency’s top enforcement official, gave preferential treatment to Citigroup Inc. executives in the agency’s $75 million settlement with the firm in July.

Inspector General H. David Kotz opened the probe after a request from U.S. Senator Charles Grassley, an Iowa Republican, who forwarded an unsigned letter making the allegation. Khuzami told his staff to soften claims against two executives after conferring with a lawyer representing the bank, according to the letter. Jon Diat, a Citigroup spokesman, declined to comment.

Citigroup agreed in July to pay $75 million to resolve SEC claims that the bank understated investments linked to subprime mortgages as the housing crisis unfolded. Gary Crittenden, who stepped down as chief financial officer in 2009, and Arthur Tildesley, the New York-based bank’s former head of investor relations, agreed to pay $100,000 and $80,000, respectively, to resolve related claims. The two men settled without admitting or denying the SEC’s allegations.

According to the letter, the SEC’s staff was prepared to file fraud claims against both individuals. Khuzami ordered his staff to drop the claims after holding a “secret conversation, without telling the staff, with a prominent defense lawyer who is a good friend” of his and “who was counsel for the company, not the individuals affected,” according to a copy of the letter reviewed by Bloomberg News.

Furthermore regular readers will recall our expose on Mr. Khuzami, who also ended up recusing himself from investigating Deutsche Bank for comparable CDO-type shennanigans, as Goldman ended up settling with the agency for over half a billion. From our May 16, 2010 piece titled Robert Khuzami Stands To Lose Up To $250,000 If He Pursues Action Against Deutsche Bank. ("Oddly" enough, the Deustche Bank investigation has gone nowhere fast).

When the SEC'a Robert Khuzami recently recused himself of pursuing an
investigation against Deutsche Bank in regard to potential CDO
malfeasance, a bank where it is common knowledge the CDOs flowed (and
were shorted "where appropriate" by Mr. Lippmann and his henchmen) like
manna from heaven, we were curious just how large the conflict of
interest must be for him to not pursue his official duty. Luckily, we
were able to answer this question when we recently encountered Mr.
Khuzami's Public Financial Disclosure Report for Executive Branch
Personnel. It appears that Mr. Khuzami, who from 2002 to 2009 worked at DB,
most recently as General Counsel, might have directly profited quite
handsomely from the very activity he is now prosecuting Goldman, and
other banks very likely soon, for engaging in. How handsomely? His 2007
bonus, 2008 salary and bonus, and 2009 salary added up to $3,804,537.
This works out to about $1.9 million in comp per year. And let's not
forget that 2006/2007 was the peak years for DB's CDO issuance. It sure
seems Mr. Khuzami benefited nicely as a participant in precisely the
kind of CDO gimmickry that he is currently all over Goldman for. Yet
most ironic, is that Robert is expecting to receive between $100,001 and
$250,000 in vested deferred stock comp from Deutsche Bank in August
2010. Should he, or someone else at the SEC, commence an investigation
into Khuzami's former employer, the SEC's Director of Enforcement is
sure to lose a substantial amount of money tied into the absolute value
of Deutsche Bank stock.

And it doesn't end there. Khuzami lists the following asset holdings as of June 2009:

  • Federated US Treasury Cash Reserves: $1,001-$15,000
  • US Treasury Cash Reserves: $1,000,001-$5,000,000
  • Fidelity Advisor New Insights Fund: $15,001-$50,000
  • Henderson Int'l Opportunities Fund: $15,001-$50,000
  • Deutsche Bank Cash Account Pension Plan: $100,001-$250,000
  • DB Stable Value Fund: $1,001-$15,000
  • Goldman Sachs Mid Cap Value Fund: $1,001-$15,000
  • Dodge and Cox Int'l Stock Fund: $50,001-$100,000
  • SSGA Money Market Fund: $15,001-$50,000
  • Delaware Emerging Markets: $50,001-$100,000
  • Gateway Fund (401k): $15,001-$50,000
  • Third Avenue Real Estate Fund (401k): $15,001-$50,000
  • Touchstone MidCap Growth Class A (401k): $15,001-$50,000
  • Wells Fargo Endeavor Select FD (401k): $15,001-$50,000
  • Yacktman Fund (401k): $15,001-$50,000
  • PIMCO Real Return Class A (401k): $50,001-$100,000
  • Principal Short-Term Fixed Income (401k): $1,001-$15,000
  • Personal Residence - New York (Gross Rental Income): $1,000,001-$5,000,000
  • Deutsche Bank Common Stock (Vested Amount Compensation): $100,001-$250,000
  • Vanguard 529 Moderate: $50,001-$100,000
  • Vanguard 529 Aggressive: $1,001-$15,000

appears Mr. Khuzami has done quite well while working in the private
sector, undoubtedly defending his German employer from precisely the
same actions he, or someone else at the SEC, may soon charge the firm
was defrauding investors by. His total disclosed asset range from
$2,525,000 to $11,375,000. It is also ironic that nearly half Mr.
Khuzami's assets are contained in real estate, and not to mention that a
substantial amount of his assets are also contained in Deutsche Bank
plans as well as DB stock deferred comp. In fact, let's take a look at
that deferred comp of $100,001-$250,000 a little closer.

appears the SEC's Enforcement Director has between $100,001 and
$250,000 in DB deferred stock compensation, which becomes payable in
August 2010. Obviously this is not a trivial number. And while Khuzami
may have recused himself from pursuing DB for CDO infarctions, that does
not mean that some other SEC enforcer (surely, their $1 billion a year
budget allows them at least more than one enforcement professional)
would not be able to go after DB. The problem as we see it is that since
the announcement of the SEC case against Goldman the firm has lost
about 25% of its market cap. It is conceivable that DB, which dabbled
far more in CDOs, and thus the SEC would have a much stronger case
agaisnt the bank, would thus lose far more of its market cap should the
SEC announce a case against the Germans. In fact, we could be looking at
Mr. Khuzami's Vested Deferred Compensation value dropping from $100,001
- $250,000 to maybe even as low as $15,001-$50,000. Then again, this
becomes irrelevant after August, when the former DB GC will have
collected all his dues. Does this mean we should expect nothing from the
SEC against Deutsche Bank for at least 4 more months? And is September 1
the day when the SEC formally announces charges against Deutsche? We
would love to get the SEC's feedback on this.

Mr. Khuzami's
potential conflicts of interest do not end with his open exposure to
Deutsche Bank. His Schedule A appendix indicates that the man has open
equity positions with firms such as Bank of America, Deutsche Bank, and
JP Morgan. To wit:

this mean that Mr. Khuzami, and thus the entire SEC Enforcement
Division, if judging by the Deutsche Bank case study, would recuse
itself of investigating these three firms from an enforcement

We certainly do not begrudge Khuzami's generous
winnings as part of the private sector. If anything, any borderline
criminal activity he may have helped cover up as GC of Deutsche (an act
he was supposed to do so no ill-will there) should provide him
with the knowledge to prosecute just such activity. However, when the
head of the main US regulator's enofrcement body is so terminally
ensnared in not just the Wall Street complex, but in the very fabric of
Keynesianism (that up to $5,000,000 Treasury holding for example and not
to mention his up to $5,000,000 rental property), the population should
ask just how extremely biased this man can be when prosecuting the very
system that allows him to have up to $11 million in assets currently
tied in to the perpetuated status quo. Surely, should the Fed, and the
market in general, be "surprisingly" uncovered to be the same ponzi
construct as Madoff's pyramid scheme, Khuzami, and who knows how many
other people, stand to lose virtually the bulk of their assets. This
makes them very much conflicted in any real enforcement action, and
certainly not independent or impartial. Perhaps Dodd, in his joke of a
bill, can consider just how to establish a securities regulator which by
its very nature is not constantly in bed with the very subject it is supposed to be investigating.

We indirectly called for Khuzami's resignation then. In light of today's disclosure that Khuzami may have put Citigroup's interests above those of US citizens and investors (the people the SEC is supposed to represent), we are forced to do so again. And if it is found that there was backroom scheming to force the settlement of the Goldman fraud, it is Khuzami who should face criminal charges himself.

In the meantime we welcome with open arms the chance that Goldman will be retried. After all, disclosures from the ACA lawsuit against Goldman have made it so easy that even the most inexperienced first year lawyer out of law school should be able to win a case against the firm.

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umop episdn's picture

Only the finest financial forensics from the Tyler. Sic 'em!

rich_maverick's picture

As long as we allow for the revolving door between regulators and those they regulate, this form of corruption will never end.  It does not matter if we have Dems or Reps in office.  We have "regulator capture", meaning that the cops on the beat are only interested in providing "barriers to entry" for new competitors.  They have no interests in enforcing laws or arresting criminals, even if by some miracle Washington puts some decent laws on the books.  Our public servants are there to provide a show, and nothing more.  They find small fish to pick on, leaving the big organized criminal syndicates alone (with the occasional fine and slap on the wrists).

Rainman's picture

+ 1.....the abnormal has become normal. Full capture was the objective and now it is done.

sushi's picture

If any of these allegations prove to be true then they form adequate grounds to demand the resignation of Elizabeth Warren.

How can the state survive if individuals can send unsigned letters of allegation to their elected representatives? Clearly Homeland Security and NSA are not adequately performing their functions.

Careless Whisper's picture

@ umop

i think the forensics are rather sloppy.

...the SEC could ever possibly scuttle this criminal case

10(b) 5 is a CIVIL matter. perhaps you're thinking of some other crime that goldman committed?


rocker's picture

Maybe Blankfein has competition. A real angel doing God's work.

Judge Fedd's picture

Funny how no one worries about "conlicts of interest" anymore, now it's called being an "industry expert".

Magellan's picture

wasn't ACA's CEO married to Goldman Sachs' general counsel at the time this transaction took place?


fleur de lis's picture

Why are they even doing this? They have not the slightest respect or even fear of the law. They flaunt their protected insolence openly for all the world to see. And the stupid SEC exists only to cover for them like street goons whilst (ab-)using the law as a bludgeon on everyone else in the form of threats and fines. When they're not surfing skanky websites on the taxpayer's dime, that is.

sgt_doom's picture

Ditto to the max!

After the S&L meltdown in the late '80s, over 1,000 banksters went to jail.

So far, it appears only Martha Stewart, Bradley Birkenfeld (the UBS-Lichtenstein tax haven whistleblower) and Bradley Manning (correctly fulfilled his legal obligation by upholding the Uniform Code of Military Justice - UCMJ - and reported war crimes) have gone to jail.

The obvious record which results from the land of absolute corruption.

DoChenRollingBearing's picture

Maybe we can get some transparency now?

NONE of our financial problems have been solved.

NO ONE of significance (at GS, Fed, etc.) has gone to jail since 2007.

Perp walks, bitchez!

Paul Bogdanich's picture

And who went in 2007?  I thought it was more like 2004 as the last cases from Nepolitano's days were closed out.

DoChenRollingBearing's picture

I chose 2007 somewhat arbitrarily, as that was the year when the first big domino (Bear Stearns hedge funds) came down, and the rot was there for anyone awake to see it all.

goldmiddelfinger's picture

Great story. Forget missing Madorff, this is aiding and abetting a crime, perjury, oh man it makes one see red

Wynn's picture

Oh to be a fly on the wall in the Lloyd's office when someone mentions ZeroHedge.

Paul Bogdanich's picture

The Obama administration will never prosecute a banker.  The Presiden does not support it the chief of staff does not support it and his AG and head of the SEC are mere lackeys.  Capricious and arbitrary enforcement of the nations laws.  To wit, look at the vigor with which they are pursuing Jullian Assange.  Basic authoritarian state stuff.  Very far from a republic where the laws apply equaly to all. 

King_of_simpletons's picture

No administration (dem or repub) will ever prosecute an upper echelon banker. They may fry a small fly here and there but that's about it.

rich_maverick's picture

You are mistaken, the laws are not enforced arbitrarily.  Arbitrary assumes that there is a chance that anyone could be prosecuted.  They are more than enforcing laws when it comes to the small players, making it uncompetitive for them to compete.  But, they leave the big companies alone, ensuring that they keep raping the average citizen indefinitely.  What we have is fraud as a business model.  Can't be described any better.

sgt_doom's picture

Perfectly put, I would just add one caveat --- it hasn't reached the popular corporate Non-media (as if it ever will) be litigation has been filed as to variances in the existing corporate-controlled legal databases.

Evidently, the power elites are able to alter judicial outcomes at will which happened quite differently in order to claim existing legal precedent.

Truly, 1984 is the year we are all stuck in.

Dr. Porkchop's picture

He didn't just nail it. He wined it, dined it, and bent it over the hood of his car.

thepigman's picture

Quite true.  Ms. Schapiro made her

rep in FINRA nailing small fry for

spitting on the sidewalk violations

while letting the larger players run


thepigman's picture

FINRA's about to get its hooks into the

registered investment adviser biz, which

aside from Madoff was relatively clean.

Shit just keeps rolling downhill, don't it?

Star Warrior's picture


+1000 buddy absolutly spot on!!!

Misean's picture

The USeless government always gets the best regulators money can buy!  Course, said USeless gov't ain't doin the buyin' you missed that...

RobotTrader's picture

Perhaps the PigMen are getting a tad nervous?

Billy Joel can't sell his house out at The Hamptons, he lowered the price from $22 million to $18 million, still no takers.{scid=news-site-leftlink1}

Of course, they will probably wait until Billy Joel gets hosed down again by a lover, ex-wife, or agent.

Then they will swoop in and steal it for a paltry $7 million.


ghostfaceinvestah's picture

My prediction: Absolutely nothing will happen to this guy.

Bartanist's picture

is TREASON still punishable by death?

uno's picture

now it will get you a reality show and book tour

Dr. Porkchop's picture

Geithner, Paulson and Bernanke are still alive, so if it is, it's not being enforced.

molecool's picture

I just can't take this shit anymore. The tentacles of bankster infiltration have touched every single public office at this point. We are so fucked.

I'm seriously considering to once again break up my tent and completely distance myself from the United States. Frankly, I can't take it anymore - reading these types of news on a daily basis 365 days a year deeply frustrates me and I have long given up hope for any semblance of justice. I think it is best to remove myself and my family from of this realm completely and for good.

Fred Hayek's picture

There  aren't a whole lot of places for you to go if you want to live somewhere where the banksters aren't actually running the show.  Sweden chose its citizens over its banks in the early 90's but Japan, the U.S. and the EU went all bank all the time.

Ras Bongo's picture

Iceland is a good destination now

Big Galoot's picture

I moved from the US to Ireland 4 years ago to escape all the BS. How am I doing??

Star Warrior's picture

Feel for you Buddy, Problem is it´s a World Wide phenomena

Payne's picture

He might prematurely expire in a hot tub after a burglary where all his documents are stolen.

greenewave's picture

The Establishment and Mainstream Media is losing control of the PEOPLE and as a result vehemently ATTACKING ALTERNATIVE NEWS. Suddenly, anyone that does not agree with the Socialist policies of the Obama Administration is an ENEMY OF THE STATE!

Watch the video “The Establishment is Losing Control” at (


“We do not have much time left before the FREEDOM of Americans is robbed by our leaders, the Internet Censored, Guns confiscated and the PEOPLE jailed for speaking truth!”

RobotTrader's picture

Meanwhile, China has the most rigid news control and censorship on the planet.  Yet social networking and gaming stocks over there are skying huge....

I assure you, that these young people could care less about politics, PIIGS convulsions, inflation/deflation debates, black swans, etc.

They are anxious and eager to catch up on:

- The Kardashians

- The Batchelor

- Jersey Shore


Just wait until they get addicted to trading stocks 24/7 on their cellphones....