This is the moment we’ve been waiting for ever since Robert Khuzami left his gig as the Director of the SEC’s Division of Enforcement earlier this year. Now a Biglaw firm has signed him for big bucks (reportedly “more than $5 million a year”).
It’s like NFL Free Agency with less Deer Antler Spray and more lamentations over the revolving door between the government and the private sector…
Congratulations to Kirkland & Ellis for locking down Khuzami:
Robert Khuzami, former Director of the SEC’s Division of Enforcement, has joined law firm Kirkland & Ellis LLP as a partner in its Washington, D.C. office. The firm announced today that Khuzami has joined its global Government, Regulatory and Internal Investigations Practice Group.
I wonder how this coup would have changed the Final Four results in our ATL March Madness competition, in which Kirkland dropped to Paul Weiss.
So let’s play the game all the kids are playing… is this revolving door a good thing? DealBook wrote up a study earlier this year that does not think so:
“Former employees of the Securities and Exchange Commission routinely help corporations try to influence S.E.C. rule-making, counter the agency’s investigations of suspected wrongdoing, soften the blow of S.E.C. enforcement actions, block shareholder proposals and win exemptions from federal law,” the report says.
By way of example, it says that in three cases against UBS, after enforcement actions threatened to limit the giant Swiss bank’s ability to issue new securities, the bank hired former S.E.C. lawyers. Each time, the report says, the agency granted relief. (The S.E.C. has defended such decisions as being in the best interest of investors, who might suffer if an otherwise stable bank was suddenly unable to sell securities.)
The watchdog report provides only anecdotal evidence of bias and does concede that the S.E.C. adopted checks on influence peddling. Nonetheless, it raises questions about the rising consequences of the revolving door.
On the other hand, Matt Yglesias explains that the revolving door is efficient:
And here’s where I think it’s important to step in with the realization that the news media has, for various professional and economic reasons, a tendency toward a systematic negativity bias. Imagine a scenario in which S.E.C. lawyers had a really hard time getting private sector jobs and almost invariably ended up needing to take a pay cut to obtain a position outside of the government. Then we’d get lots of stories about overpaid and incompetent federal bureaucrats, living high on posh government salaries (S.E.C. lawyers don’t earn much compared to top private sector attorneys, but they definitely earn more than the average American) despite a lack of viable skills or job prospects. You’re damned if you do and damned if you don’t because “Longstanding Practice Is Basically OK” is not very a good story pitch to your editors. But there’s actually specific academic research on the question of how the revolving door impacts S.E.C. enforcement actions and it concludes that S.E.C. lawyers who rotate out into the private sector are more aggressive in their enforcement efforts than those who don’t.
If you manage to unplug from the revolving door narrative for a second, you can see why this makes sense—if you spend your time as a government lawyer being extremely lackadaisical in your prosecutorial efforts that’s going to make you look like a bad lawyer who people don’t want to hire. If you want to cash in some day, you want to have the reputation of being someone who’s really smart and tough and effective and who understands how to make cases. That’s the kind of lawyer who the private sector wants to hire.
The truth is probably somewhere in the middle. Firms definitely reserve their highest regard for the toughest lawyers, which is a good incentive. On the other hand, I can say from personal experience walking into a meeting with a young enforcement lawyer along with a partner who had six months earlier been very, very, very senior at the SEC, there was a palpable intimidation factor. That’s not ideal either.
In any event, for better or worse, the door spins on.
Former SEC Enforcement Director Robert Khuzami Joins Kirkland & Ellis in D.C. [Compliance Week]
S.E.C.’s Revolving Door Hurts Its Effectiveness, Report Says [DealBook / New York Times]
The SEC’s Top Cop Is Cashing In as a Wall Street Lawyer, and You Should Feel OK About It [Slate]