Friday, March 19, 2010

SEC's Khuzami live at SABEW in Phoenix

Robert Khuzami, the SEC's director of enforcement, says that his agency is the cop on the beat for the financial service industry. See the video below...

He said that under his tenure, specialization is what makes the difference. Today's sophisticated fraud is complex, and so specialized investigators are "smart in the areas in which they operate."
And he says he does look at business news for tips for areas to investigate. He says tips just don't do it... but specialized investigators can figure out which rock to turn over.
The SEC enforcement will divide into five areas, to be launched in mid April:
  • Asset management, including investment companies and hedge funds
  • Market abuse, including insider trading and other market manipulation, including frontrunning and shortselling. Especially focused on technology.
  • Structured and new products, including derivatives like CDOs. He's very suspicious of new products.
  • Foreign corrupt practices, particularly bribery.
  • Municipal issues, particularly pay to play, and public pension accounting. It's thinly regulated area, and stretched local finances could lead to fraudulent practice.
The SEC is also working with more "cooperative" agreements to flip insiders to inform on their shady employers. He also has changed SEC's management, flattening the administration and making management less top heavy. He's also improved work flow and a new Chief Operating Officer is streamlining process, including creating a centralized office to handle the more than 700,000 tips the SEC gets every year. They are also looking a metrics to look at the use of resources within the agency. Khuzami is also pleased with the quality of new employees in the SEC who have a great deal of expertise.

He says it's also about the cases. "I have a great deal of optimism about the future of the division. The numbers are up across the board." He cited his enforcement action particularly against mortgage lenders like Countrywide for deceptive practices, and New Century for overstating financial statements. Also he cited charges again a hedge fund managers and an investment banker for manipulating prices in the credit default swap market. He's also charged hedge fund managers for pushy shoddy projects, and accounting firm Ernst and Young for fraudulently restating Bally's earnings. He brought several Sarbannes-Oxley violations violations, as well as insider trading violations, including the Galleon Group case, where hedge fund investors lost billions.

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