A legal bane of Wall Street switches sides
When he left his role as Wall Street's top federal enforcer, Robert S. Khuzami began a long courtship with a who's who of the legal world.
The calls rolled in from financial giants like Visa and Bridgewater, and from white-shoe law firms, like WilmerHale. Some offered outsize paydays, others promised an office not only in New York but also in Washington, where his family lives. They all wanted the benefit of his experience as a terrorism prosecutor and enforcement chief at the Securities and Exchange Commission.
Six months later, lawyers briefed on the matter say, Mr. Khuzami has accepted a job that pays more than $5 million a year at Kirkland & Ellis, one of the nation's biggest corporate law firms. In doing so, he is following the quintessential Washington script: an influential government insider becoming a paid advocate for industries he once policed.
As a partner at Kirkland, Mr. Khuzami will represent some of the same corporations that the S.E.C. oversees. Critics say this revolving door—common at the S.E.C.—undermines the agency's independence and links it inextricably to Wall Street. Mr. Khuzami, who spent 17 years in the government and has publicly called for lawyers to build public and private experience, called defense work essential to the justice system.
"It's both aggressive enforcement and vigorous defense that are critical to justice and fairness," Mr. Khuzami, who will start in Kirkland's Washington office around Labor Day, said in an interview.
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His compensation package, the lawyers briefed on the matter said, is guaranteed for at least two years. Kirkland, known for lavishing its star partners with some of the highest salaries in the industry, also hired one of Mr. Khuzami's lieutenants at the S.E.C., Kenneth R. Lench. Kirkland announced the personnel moves on Tuesday.
Some companies and firms offered Mr. Khuzami more money, reflecting law firms' high demands for former S.E.C. enforcers. As Wall Street faces greater regulation after the financial crisis, the firms are clamoring for marquee names who can navigate the agency.
"To make a white-collar practice work, you have to have an incredibly strong and credentialed lawyer who can generate a material number of matters," said Peter Zeughauser, a consultant to large firms. Or, put another way, "You want a big name you can trot out before corporate boards."
Mr. Khuzami's name has circulated around Wall Street for decades. After putting himself through University of Rochester working as a truck driver and overnight dockworker, Mr. Khuzami went to law school at Boston University and ultimately became a junior lawyer at Cadwalader, Wickersham & Taft in New York, where he handled securities cases and commercial disputes.
The job paved the way for him to join the United States attorney's office in Manhattan, where he ran a securities task force. During his 11-year tenure at the office, he also prosecuted terrorism cases, including the conviction of Omar Abdel-Rahman, tied to the 1993 bombing of the World Trade Center.
Mr. Khuzami returned to the financial world in 2002, arriving at Deutsche Bank, where he eventually became general counsel for the firm's American businesses. Mr. Khuzami helped steer the bank through the financial crisis and an investigation into its tax shelters.
When the S.E.C. was reeling from the crisis, the agency turned to Mr. Khuzami to revamp its enforcement unit. He joined at a time when some lawmakers wanted to abolish the agency, making it a curious choice for Mr. Khuzami, who already possessed a coveted job.
"When he went to the S.E.C., this was not a guaranteed happy ending," said Richard Walker, Mr. Khuzami's boss at both Deutsche Bank and Cadwalader and a former S.E.C. enforcement official himself. But his prospects improved. Mr. Khuzami drew praise for creating units to track complex corners of Wall Street and applying prosecutorial tactics to civil cases. Under Mr. Khuzami, the enforcement division logged a record number of actions, including a case against Goldman Sachs.
When Mr. Khuzami announced his departure from the S.E.C. in January, the offers came pouring in. All told, lawyers say, he fielded more than 20 inquiries. About a dozen were serious. In addition to WilmerHale; Paul, Weiss, Rifkind, Wharton & Garrison; and Cravath, Swaine & Moore, he heard from Latham & Watkins; Skadden Arps; Fried Frank; and his alma matter, Cadwalader. Kirkland's interest came through an independent recruiter.
Visa and Bridgewater, the giant hedge fund, were among the companies that approached Mr. Khuzami for in-house counsel jobs. The fervor grew so great that Fox Business declared it the "biggest bidding war on Wall Street."
"We started out knowing that everybody and anybody wanted him," said Mark Filip, who leads Kirkland's government and regulatory defense group.
But in recent weeks, Mr. Khuzami and Mr. Lench selected Kirkland, irking some rival firms that waited months for a response.
For one, Kirkland offered Mr. Khuzami the chance to settle in Washington. He has reached deals to buy a home there and sell his apartment in Manhattan.
And unlike WilmerHale, where the white-collar practices are overflowing with former government lawyers, Kirkland offered Mr. Khuzami an opportunity to mold his own practice. At Kirkland, he will handle internal investigations, S.E.C. enforcement cases, white-collar criminal matters and crisis management. He will also advise companies on ways to bolster internal controls.
He joins a white-collar defense group that includes Mr. Filip, a former federal judge and United States deputy attorney general who has led BP's defense in the Justice Department's investigation stemming from the oil spill in the Gulf of Mexico. Other senior members of the practice are Neil Eggleston, a former senior lawyer in the Clinton White House and Michael Garcia, a former United States attorney.
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The revolving door at firms like Kirkland has alarmed some watchdog groups. The Project on Government Oversight, a nonprofit group, released a study this year highlighting a pattern of former S.E.C. officials securing favorable results from the agency.
"It can really help a Wall Street bank to show they're represented by the former top cop on Wall Street," said Michael Smallberg, an investigator at the group. "It's not like you see an equal number of S.E.C. lawyers going to represent shareholders and whistle-blowers."
Mr. Khuzami, however, has embraced the revolving door, delivering speeches outlining its benefits. Anyone required to shine a light on the darkest corners of Wall Street, he argues, must know how it works.
Mr. Khuzami also points to a study last year, prepared by a group of accounting experts, that found the revolving door actually toughened enforcement results. And as a check on improper influence, Mr. Khuzami will face a one-year "cooling off" period during which he cannot have any contact with the S.E.C. He also is forever banned from appearing before the agency in any case in which he was involved.
"You don't undertake a historic restructuring of the enforcement division and bring a record number of cases if you're trying to curry favor with the industry," he said. "Wherever I go, I'm not expecting favors."
Mr. Khuzami joins Kirkland at a time when many corporate law firms have bolstered their white-collar defense groups, a response to enhanced government scrutiny on Wall Street. In addition to the Dodd-Frank regulatory overhaul law, banking regulators and the S.E.C. have warned of new enforcement cases.
As such, Kirkland is the latest firm to make a trophy hiring in this area. Patrick Fitzgerald, the former United States attorney in Chicago, joined Skadden, Arps last year. In June, Winston & Strawn, a large firm based in Chicago, hired Gerald Shargel, a noted criminal defense lawyer in New York. And Ballard Spahr, a firm based in Philadelphia, recently expanded into New York by merging with Stillman & Friedman, a prominent white-collar defense boutique.
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As these practices grow, and gaggles of government lawyers leave the public sector to join firms, there is a rising concern that, even with the stepped-up demand, there is an oversupply of white-collar criminal defense lawyers. The problem, legal experts say, is that most assignments don't involve a large team of lawyers billing many hours.
Yet in recent years, amid a challenging environment, Kirkland has performed well. The firm's revenue increased nearly 11 percent last year, to nearly $2 billion, according to American Lawyer magazine.
One reason for Kirkland's ascent has been its aggressive recruitment of top talent from rival firms. In recent years, for example, it made a big push in mergers and acquisitions, adding David Fox and Daniel Wolf from Skadden Arps, and Sarkis Jebejian from Cravath.
As for Mr. Khuzami's pay package, it won't stand out at Kirkland. A small number of the firm's top-producing lawyers make about $8 million a year.
—By Ben Protess and Peter Lattman, The New York Times