>> our guest on "newsmakers" this week is robert khuzami. mr. khuzami is the head of enforcement for the securities and exchange commission. thank you very much for being here this week. here. "the new york times" ackerman covers the f.c.c. for "the wall street journal" and dow jones news writers. thanks for being here. you.

financial crisis have certainly, i understand the feelings given the breadth of the loss and the impact of the financial crisis on people's livelihood and on their savings and investments. but having said that, as you indicated, i think our performance has been very strong in this area over, i think, at last count, 102 entities and firms have been charged and most importantly, over 55 c.f.o.'s, c.e.o.'s and senior corporate executives for conduct across the mortgage-related areas from issuing companies like country wide and new century to those firms that issued c.d.o.'s with misleading statements such as goldman-sachs, j.p. morgan,

citigroup to the mutual fund complexes that loaded their funds up with riskier mortgage assets than they disclosed to their investors, morgan, keegan, schwabb and other companies. we've been active across the board. we have a specialized unit to handle these cases, and we're vigorous across the platform. some of the concern sometimes is reflected in comments that one or more of these folks in jail, criminal authority. i area. they are or are the firms the biggest e at big executives

certainly some of company issuer side in countrywide, new century, and those companies, we charged c.e.o.'s, c.f.o.'s, senior corporate officers. in the investment banks, it's a little different because the cases that we've charged in this area is the issuance of a particular c.d.o. that was misleading. those kinds of transactions often don't get vetted in the executive suite, right? some information does. when you're talking about company earnings reports and disclosures and prospectuses to advisors, those are signed off by c.e.o.'s and c.f.o.'s. some other deal transactions often aren't vetted at the senior corporate levels. don't get me wrong, we follow the trail of evidence wherever it leads but the nature of the transactions is different. you're not going to see as many prosecutions of those folks for

those types of violations that you might otherwise. but again, we look strongly and thoroughly across the entire corporate network. >> andrew? >> yeah, when you came to the s.e.c. three years ago, the agency's failure to detect the madoff ponzi scheme was this giant cloud that hung over the agency and i'm wondering to what degree do you think the s.e.c. has recovered from that tarnish on its reputation. i think the agency responded in exemplary fashion to both the madoff revelations as well as the financial crisis. i mean, as you would expect and any entity public or private, we took a hard look at ourselves in terms of what we could do better and the result of that was the enforcement division under one of the most significant restructuring in 40 years created specialized units to focus on priority areas, flatten management, create corporation

programs to get earlier, better evidence of wrongdoing. created a c.o.o. function to handle in a better and more efficient manner a lot of administrative and other tasks so that -- so that the investigative staff could spend more of their time doing that. a lot of reforms across the board, great deal of talent was available and came to the commission and those kinds of reforms were repeated across the division. so from where i sit, as indicated by the performance, the agency has responded extremely well and, you know, done the things it should do which sometimes can be difficult to do. in what we're doing good and not doing good.

delete earlier in the cycle before the investor funds are: it a area that is not quite as transparent. we are getting them sooner. we are not waiting for the fund to blow up or had fled to appear, but we are in their earlier. in the assets needed to the unit we took a look across all investment advisers to seek to work earning returns in excess of competitors, it twos were static over a time when you would expect to see volatility. returns were static. that is a fund you would want to take a second and hard look at to determine whether there could

be a policy skeed going on. we are using more data to identify subsets of firms or individuals we want to take a closer look at. -- whether there could be a pon zi schema and going on. e going on. >> do you feel this could be a head wind and request for additional resources? is it making your job harder? >> i do not think so. we have not forgotten lessons by any means, but there is enough of a track record of honest reform and proactive efforts that the honest critics will see ast and it will use made eoff an example to deny funds.

even those still troubled by it, the statistics make it clear if you take that into account, we're significantly underfunded. the chairman gave the figure that while we are responsible for regulating 35,000 entities, transfer agents, as well as in the enforcement division, anyone who might commit securities fraud, and we are the size of the d.c. police force. that is one way of getting a measure of how our size and budget compares to the task at hand. >> how has technology to enhance your efforts? >> we tried to do a lot in the technology area to introduce efficiencies. for example, we had an antiquated discovery system that collects all of the information that we get electronically in our investigations, and to give you a sense of the volume, we probably get anywhere from 3-6

terabytes of information per month. the entire congress printed edition is 20. we have massive amounts of data. we had an antiquated system that lacked sufficient search capabilities and artificial intelligence, and we are now implementing that. we have new financial extract software so that when you get massive members of broker record dealers -- broker dealer numbers, you can download that to spreadsheets that can be manipulated, and in the not too distant past that was being manipulated manually. we are pursuing people for the fights we have assessed or distributions to people who of unharmed. we're centralizing that so investigators and the field can send out higher percentage of their time in court competency, which is investigating fraud and misconduct.

the budget, the entire budget i believe is -- that technology budget of the entire agency is $100 million, of which enforcement it's just a fraction. i know one of wall street firm that spent nearly $5 billion on technology and communication equipment. that starts to give you some sense of while we're doing what we can with the money, a great -- greater technology budgets ./uld be most welcome here ye >> if you are saying is widely understood you do not have the appropriate funds, why are they collecting to give you what you need? >> i do not want to speculate on why some choose to support our request for additional funding and others do not off. all i can say is i think the

funds are needed. i do not want to create the misimpression that we do not very consciously use what we've got or lack of funding as an excuse. as i recently testified before congress, we punch wellll above our weight clauses. there are some cases where we will put what ever resources are necessary to see the case through to the end, regardless of what budget constraints. -- regardless of budget constraints. with dodd-frank that has only increased regulations. we were underfunded in my view before, and that has only increase the workload.

large firms. a lot of times they are settled before you go to trial. they settle on some distant decree and payment of a fine. what evidence do you have that the settlements deter future wrongdoing, because there have lot of cases where particularly among the large wall street firms, they make settlements for violations of the same section of securities act over and over, seemingly without any additional penalty. >> well, we do take into account the prior track record of a particular firm and decided what kind of penalties and sanctions to assess. there are some limits on whether or not we can assess it. there is a certain ceiling based

on the pro-violation formula or based on the amount of money the firm earned a in terms of what we can ss. that is why the chairman has requested additional authority, particularly in the case that it violates a particular junction order. we take that into account, and from where i sit, firms take very seriously an sec investigation and the sanctions that come with it. the study are cases, corrective action is taken across the industry. when they see one from being subject to enforcement action, they look at their own shop and house to determine whether they have the same problem, and try to correct it. there is a real ripple effect to our actions that achieve a significant deterrent effect. we prosecute a large number of individuals. in the credit crisis cases, 75%

of cases are filed and litigated, which means we're going to court litigating against individuals and firms. we only accept settlements when we believe it is close to what it is that we could hope to get. we would be not doing our job and not protecting other investors if we did that settle a case where we got close to what we hope to update and being able to get the money earlier so we could distribute to investors and so we can use those funds off to go out and investigate the next fraud. >> even of their pay a $150 million penalty, that is a few days or few hours' worth of revenue to them. are you saying because we are bigger fines, do you think they would be more meaningful? >> i do not think treated

revenue or profits is the proper metric for what a particular fine should be. we have a statutory limit on what we can fine, but we operate aggressively. let's take goldman sachs. that is a case where the firm. they paid $535 million penalty. that is 30-40 times what they expected to warn. that is a sharp, cold, hard message managers that they should be very careful about the transactions they engage in, and the fines and penalties they may face are not just the cost of doing business. there are cases where the penalty authority to restrict our ability to obtain sanctions. if an investment adviser earns $100 worth of assets and earned

a 20% feet, they earn $20 for managing those assets. if they have $100 worth of losses, the most the sec can get is $20 because that is the amount they aren't, it's another $20 in penalty for a total of 40. there is a front-page story -- private equity zombie funds. there is a story about how the sec is looking into the funds. can you explain how big of a problem you think this is, and if we should expect to see sec enforcement cases in that area? >> i think it is a good example

of what we're doing differently now. the asset management unit. we went out and hired a lot of private sector experts. risk managers, portfolio treaters. we hired them to come into the commission and work with us to help us to investigate wrongdoing, and to tell us where the rocks were and what was buried underneath them. this it was an initiative where we identified this phenomenon, which is fund manager city on assets that cannot be sold, or their valuations are so low they really do not want to sell them. so the managers continue to earn fees year in a year out that investors are paying in not seeing any return, and we will take a close look at that to see whether or not there is a problem. also, these advisers will be required to register if they have won more than $150 million

worth of assets in general. going forward the benefit is examiners can go to these advisers of look for things like valuation problems as of the funds and things like that. >> another issue tied to potential enforcement action is lehman brothers. the agency spokesperson is on the record saying that you guys have an open inquiry into that, the bankruptcy into the failure of the firm, but there is a memo where staff have said they are not of a mind to bring any enforcement cases. can you say if there is a reasonable prospect that there will be a case of that area? >> it would not be appropriate for me to comment on a particular status of the case, but the matter is still under consideration and analysis. we look very closely of the examiner reported. we conducted our own independent investigation, including

reviewing millions of pages of documents and witness interviews. >> the memo is not the final say on the matter? to go i will not comment on a particular memo. lot of insider- trading cases recently. this has been helped by technology. the very biggest cases have been brought as criminal prosecution by the u.s. attorney's office. how involved, and were you involved in those investigations, or had you in those speed -- been pushed to the backgrounds of what or have you been critical in gathering the information and bringing them to justice? >> we have brought parallel cases and everyone of insider trading cases that have been brought, including those that were brought in new york in the

fund. and funon we work closely with team and provide a lot of analysis, and we work very closely with them. we have more resources and more expertise in the markets in general and the criminal authorities have additional tools in their tool shed with respect to search warrants and wiretaps of the threat of jail as well, so that together we make a very formidable force. we have brought parallel cases and everyone of the matters that the u.s. attorney's office has done as well, and it is a long- standing partnership to both agencies. he got a lot of these investigations, the justice department gathers information

but not allowed to share it with you. does it work the same in the other direction? take a generally there are restrictions on the sharing of grand jury material and wiretap information. those are probably the areas you are talking about. there are ways to construct an investigation with respect to the grand jury issues so that we can steer clear of those prohibitions. wiretap authority is more difficult. we can get wiretap information, just not on a timely basis. we will get it at some point down the road. there are ways to navigate around that, and obviously the benefits of wiretaps is so great that we want to make sure we do not do anything to disrupt or imperiled the use of those devices. >> last question.

the dodd-franc regulatory overhaul gives you the authority to give a lot of money potentially to people with the companies to blow the whistle on fraud at their companies. why haven't we seen any whistle- blower awards and when will we? >> the awards are made only after the conclusion of the matter where there has been a determination that the $1 million in sanctions have been ordered, because that is the threshold amount. that takes time for the cases to work their way through to the point where a final judgment. so it is not surprising for a cause for concern that has not happened yet. the whistleblower office is thriving, we are getting a substantial number of complaints

-- tips and referrals. more portly, higher-quality ones, which is what we hope for. the whistle-blowing a program in cooperation program were we offer reduced sanctions for people that come forth with evidence, those of the tools we are trying to use to get information sooner about wrongdoing. >> there seems to be a perception that the whistleblower program is undermining the internal compliance regime, that people want the money so they go straight to the sec and do not bother going through the internal system. >> received comment letters what we were drafting that. we recognize that concern, because of strong internal compliance department could do a lot of good to prevent wrongdoing, so we did not want to disrupt that. we struck a balance of the roles were we included a couple of matters, including whether a

whistle-blower what first and deciding how much they should be able to be awarded. you save more money and do not lose your place in life, because there are certain deadlines. if you go in house first and raise your complaint, you did not use -- lose your place it like in terms of eligibility. >> are using more whistle- blowers that party got through that or not? >> people, despite the financial incentives, still go first to companies to correct the wrongdoing. i think a lot of the concerns have not been borne out by the practice. >> you have to marshal resources. if you have had -- if you have more, what sort of cases would

you break or areas which you look at the you have not been able to out? to go with more resources -- >> with more resources, we would be able to do the bird dives. we have active offering a broad accord corrupt practices act and insider-trading, but what we would do is have people be able to react souter and conduct investigations at an earlier stage so that we could stop fraud before the investor money is lost. that is probably the single biggest thing we would do, and we would have more professional itd support help and resources. >> if one big a change to make the investment public safer,

what would it be? have to go from the enforcement perspective, i think it would be larger budget to be able to give us better technology and more suppo staff and more private sector experts. >> think you for being with us. >> think you. -- thank you. >> after talking to the enforcement chief at the securities and exchange commission, a very bullish on the enforcement overhaul and the success rate of the sec, but what is the view of the l oversight committees of the work they are doing in the past couple of years? people in congress have complained that no matter how many -- a matter how much money they give, they still make big blunders.

with the real-estate deal in office space they did not need not fill, continually case and say you missed that so why should we give you more money? >> your thoughts when you talk to members of congress about what is happening there? we heard he is asking for more dollars so he can have better technology and more people, but what is their view? >> their view is they need to be more efficient with the resources they have. i think house republicans certainly are open to the idea of giving the agency more resources, but they work -- one from restructuring. they are funded by transaction fees that they impose on the firm's their receipt at wall street, so giving them money

does not necessarily translate to increase the budget deficit. to go they are self funding. -- >> they are self funding. there is a reluctance to throw more money air regulators at this point. he did not want to admit missing madeoff was over shattering things, but when you talk to people on the hill, that is their biggest thing. >> talk about the large companies that are regulated and the resources on technology. not only that, but we have seen so many instances of the fbi database. the government is notoriously slow and the technology area, so how are jobs doing with implementing technology as a tool for finding the bad guy? >> it has been recognized that

your board to keep up with the innovations on wall street, you have to play their game and use technology to sift through the better going through insider trading and patterns emerging that will lead you to clues. i see he enters the of that and has been aggressive in doing that. they have brought bigger cases and changed structural things under mary shapiro where they do not need to go now to the full commission to get permission to start an investigation. they are trying to do that, but drug lords have more money than the dea has. the mafia has more money than the new york city police department. be that way. the question is, how well the the use what they have? to g