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How SEC "Revolving Doors" Protects Wall Street's Fraudsters

Politics / Market Regulation Aug 09, 2013 - 07:24 PM GMT

By: Money_Morning

Politics

Shah Gilani writes: A funny thing happened on Robert Khuzami's way to a $5 million-a-year job.

By funny I mean sickening; by sickening I mean a travesty of a mockery of a sham; by a travesty of a mockery of a sham I mean how the operatives at the SEC sometimes operate.


Robert Khuzami, the recent former head of enforcement at the Securities and Exchange Commission, just signed with powerhouse law firm Kirkland & Ellis, one of the nation's biggest corporate firms, for a deal that guarantees him $5 million a year for at least the next two years.

After that, who knows? He might work his way up to join the top slot prestidigitators, I mean professionals, at the firm, who are paid about $8 million a year.

Good for him. He's smart, aggressive, and knows how the games are played. He's a playa.

Not at the SEC, of course. There, as the top dog biting the behinds of Wall Street miscreants, the good-looking enforcement chief did a bang-up job chasing down inside traders like Raj Rajaratnam and Rajat Gupta.

And to his credit, he bit the bicycle wheels of the fast-moving Goldman Sachs, slowing them down enough to pay a $550 million fine in 2010 for misleading investors on a collateralized debt obligation (CDO) deal called Abacus.

You may know that round two of that fight - over whether or not Goldman's man, the Fabulous Fab Tourre, who put one part of Abacus together (there were several deals under the Abacus name), did so with the help of hedge fund honcho John Paulson to guarantee the product would fail and Paulson would reap a windfall - was just found guilty of fraud relating to the deal.

Here's what you probably don't know...

Goldman wasn't the only one doing this.

Another huge purveyor of built-to-blow-up CDO deals put together with the help of John Paulson was Deutsche Bank.

Here's something else you probably didn't know.

While Deutsche Bank was looked at, two years after Goldman was fined in July 2010, for doing exactly what Goldman did - only the name of their cherry bombs came under the START label - nothing ever came of the look through.

I searched and searched, but I couldn't find anything through the SEC's looking glass about them looking into Deutsche for duplicating the fraud that Goldman never admitted nor denied perpetuating.

In 2012 the German magazine Der Spiegel broke the story that the SEC was looking at Deutsche's dealings on the slippery slopes of slicing and dicing synthetic CDOs into potable H-bombs. But there's no après-ski happy ending, or any ending at all that I could find. Not even on the SEC's website (here), where a host of dispositions on the same subject are listed.

Want to know why?

Well, here's something you probably don't know.

At the time Deutsche Bank's darling derivatives do-gooders were putting together the firm's planned obsolesce CDO deals, Robert Khuzami was, get this, the Deutsche Bank's General Counsel for the Americas and Global Head of Litigation and Regulatory Investigations (starting in 2002).

Isn't that interesting?

Khuzami stayed at the bank until 2009, interestingly enough, just until all the you-know-what was hitting the fan. His boss at Deutsche, Richard H. Walker, who had met Khuzami at Cadwalader, Wickersham & Taft when Walker was a partner there, later recommended him for the enforcement job at the SEC - a job Walker once held himself.

Nothing ever came of the SEC, under deputy dog Khuzami, looking at Deutsche's CDO tripwires. But they probably could have extracted hundreds of millions of dollars from them, as they did Goldman.

How do I figure that? Because just a few months ago, in March 2013, Deutsche Bank reached a $17.5 million settlement with Massachusetts regulators who said the firm's employees didn't disclose conflicts of interest tied to collateralized debt obligations before the financial crisis. (Details of that settlement here.)

The travesty of a mockery of a sham is that "revolving doors" like this are all over Washington. And as Khuzami's kabuki theatrics prove, a wink is as good as a nod to a blind horse.

To learn more about Wall Street's shenanigans and opportunities, and to subscribe to Shah Gilani's free newsletter Wall Street Insights and Indictments click here...

Source :http://moneymorning.com/2013/08/09/how-sec-revolving-doors-protect-wall-streets-fraudsters/

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