SEC enforcement chief defends agency


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The head of the Securities and Exchange Commission’s enforcement unit doesn’t take kindly to criticism, even if it’s from a federal judge.

In sharply worded remarks Thursday, SEC enforcement chief Robert Khuzami praised the agency’s track record in cracking down on Wall Street fraud -- and defended a controversial SEC policy of settling cases against alleged Wall Street malefactors without forcing them to admit guilt.


SEC settlements normally include boilerplate language saying companies neither admit nor deny whatever the agency has accused them of. Companies want to avoid admissions of guilt for several reasons, including fear that they would be vulnerable to lawsuits from aggrieved investors.

U.S. District Judge Jed Rakoff created a firestorm this week when he rejected a proposed $285-million SEC settlement with Citigroup Inc. over a mortgage-bond deal. The judge upbraided the SEC for routinely settling cases without requiring acknowledgements of wrongdoing.

The proposed settlement was ‘neither fair, nor reasonable, nor adequate, nor in the public interest,’ Rakoff said.

Khuzami shot back at Rakoff and others in a speech at a conference in Washington.

SEC naysayers suffer from fundamental ‘misunderstandings’ about how the SEC works and what powers it does -- and does not -- have, he said.

Companies would never admit blame, he said, and pushing them to do so would only prolong legal battles, delay recompense to fraud victims and overwhelm the agency’s limited resources.

Federal judges have approved admission-free settlements ‘time and time again,’ he said.

‘While it is easy to criticize from the sidelines, the practical reality is that many companies would refuse to settle cases if they are required to admit unlawful conduct because that might expose them to additional lawsuits by litigants seeking damages,’ Khuzami said.

‘The result would be longer delays before victims get compensated, the expenditure of SEC resources that could be spent stopping the next fraud, and -– quite possibly -– less money in the pockets of wronged investors,’ Khuzami said. ‘And we’d lose the certainty that the victims would actually get compensation.’

The SEC, Khuzami said, has had ‘impressive results’ in cracking down on Wall Street malfeasance in the aftermath of the global financial crisis.

The agency brought 735 enforcement actions in fiscal 2011, nearly 9% more than the previous year and the most in SEC history, he said.


Judge rejects $285-million settlement between SEC, Citigroup

Judge Jed Rakoff taps into nation’s outrage over economic crisis

SEC targets Goldman Sachs with fraud suit

-- Walter Hamilton

Jacquelyn Martin / Associated Press.