Khuzami Testimony: "Mortgage Fraud, Securities Fraud and the Financial Meltdown: Prosecuting Those Responsible."

Posted on December 28, 2009 by Regina Ori

On December 9, 2009, the Director of the SEC’s Division of Enforcement, Robert Khuzami, testified before Senate Judiciary Committee at a hearing entitled “Mortgage Fraud, Securities Fraud and the Financial Meltdown: Prosecuting Those Responsible.” Khuzami’s testimony detailed five primary areas in which the SEC is focusing its enforcement efforts.

First, the SEC is investigating and pursuing enforcement cases based on unlawful conduct related to the financial crisis.  Second, the SEC is enhancing its working relationship with other law enforcement authorities, including the DOJ.  Third, the SEC is implementing several reorganization initiatives, including the creation of specialized units within the Division of Enforcement that are aimed at attacking both the causes of the recent financial crisis, as well as current and future market practices that are a potential cause for concern for the SEC.  Fourth, the SEC’s staff is proposing various legislative reforms, including nationwide service of process, a whistleblower program and enhanced access to grand jury material.  Last, the SEC is seeking additional resources for both the Enforcement Division and throughout the SEC.

A transcript of Khuzami’s testimony is available here.

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Jury Finds Ex-Bear Stearns Managers Not Guilty in Subprime Hedge Fund Case

Posted on November 13, 2009 by Fred Rivera

Two former managers who ran a Bear Stearns hedge fund that invested in subprime bonds and derivatives were found not guilty of securities fraud charges by a Brooklyn jury.  According to a report in the Wall Street Journal, the government alleged that the two men, Ralph Cioffi and Matthew Tannin, lied to investors about the condition and value hedge funds filled with subprime bonds. The funds collapsed in 2007, shortly before the pinnacle of the mortgage crisis that eventually doomed Bear Stearns.  WSJ noted that the acquittals are a setback for New York's U.S. Attorney's Office, which is also involved in investigating other Wall Street players for possible criminal wrongdoing stemming from the credit crisis, including at Lehman Brothers Holdings Inc. and AIG.

In a press release, U.S. Attorney Benton J. Campbell said "Of course, we are disappointed by the outcome in this case, but the jurors have spoken, and we accept their verdict.  Honesty and integrity are the principles upon which our financial markets function. Enforcing and protecting those principles will continue to be one of the principal efforts of this Office."

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