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How “Revolving Doors” Protect Wall Street’s Fraudsters

9 | By Shah Gilani

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 recently 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 – is now on trial.

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.

Shah

9 Responses to How “Revolving Doors” Protect Wall Street’s Fraudsters

  1. Ashley Goodman says:

    Your prose is superb. Your images breath taking. Its got nauseate all of us who see the Republic sink into drink but the worst is yet to come. Not only can the shrinking middle class not only get just anywhere in our legal system primarily because they cannot afford it. But now they cannot get safe, sanitarty medical treatment in the nation’s hospitals. Hospitals in New Jersey for sure are buying up Doctor’s practices, hiring the doctors to work for them under threat of firing if they do not a minimum of 30 patients a day. The hospital themselves are over crowded, loaded with harmful bacteria and a patient in the emergency room is more likely to see a Physician’s Assistant then a medical doctor. X Rays, MRI, CAT SCANS ARE NOW READ INDIA. with dire consequences in one recent case that I know of. Plainly, it seems that the physical, political, neducak commercial, financial infrastructure of the country is breaking up and sinking into a morass of corruption and debt. Who will stop the downfall? Why the bullion banks for sure. I am waiting for a solution. Do you have one? I like to think of myself as a patriot fool that I be.

    • Wayne says:

      Ashley, the solution is for the voters to form their own lobby with representation from every state. These lobby members would be tasked to examine all legislation and issues, come to a consensus, and report (via website) findings. The website would allow voters to be polled (per each state) so the lobbyists could report findings to individual Congresspeople on both how the voters in general and in each state feel. The elected officials would be lobbied to vote according to their constituency and graded as to whether they really represent them. This would have a decided affect on legislation which is usually proposed (and written) by lobbyists from corporate sectors which has little benefit to the taxpayers (and usually has an adverse affect). A People’s Lobby would have a watchdog affect and would help to eliminate those Congresspeople whose only interest is serving their “corporate handlers” (campaign donors).

  2. Ian says:

    Were you born in the USA Shah? Or maybe that does not matter since the current president got in. If qualified why don’t you stand as an indepenedent for the White House?

    • Jimmy Z says:

      @Ian Wow, five years later you birther’s won’t let it go. What an insult to the Bush DOJ who vetted Obama. You actually think they would have let him run if they could have disqualified him?

  3. Jimmy Z says:

    Those revolving doors have been around awhile. One of them is directly between the White House and Wall Street. Another is between DOD and military-industrial lobbyists. Somehow we need to stick a big citizen’s foot in those doors and stop the madness.

  4. RePete says:

    Nothing new here. Been going on for a long time now. Look at Bill Clinton. How do you think he raised over a $1B for the Clinton Foundation. Those were not nickles and dimes from the American people. Those were big bucks from world leaders and big banksters that he took care of with free trade agreements, and the repeal of Glass-Steagall.

  5. Brad M says:

    A nation of people who have grown cynical, apethetic, and uninformed will find their wealth and freedoms taken from them if they do not wake up, stand up, and take necessary actions. History has shown this well. We must break the current triangle among the Fed – government – and financial institutions which is destroying our economy.

  6. Rick Yearout says:

    Brad, Completely agree with that well written solution. Since Shah informed us the STOCK Act (Stop Trading On Congressional Knowledge) was thrown in the crapper by our legislators I have asked my representatives in Washington state why this was overturned and strangely enough… none of them want to respond.
    The media wouldn’t cover it if it was handed to them in complete presentation with names, colored graphics and charts.
    Egypt’s coup shows at least some people have the guts to try and remove from power those they don’t believe have their country’s best interest in hand.
    I keep following along with these blogs to stay informed even though I know Obama is listening in as I wait for the announcement “It is time to physically remove them all from the White House, Senate, House, SEC, FED, corrupt banks and put them all behind bars… Guantanomo is my choice for them.

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