It’s common for young lawyers to be prosecutors, then become criminal-defense attorneys after they’ve sharpened their skills. Similarly, it’s not uncommon in Washington for lawyers to work for regulatory agencies, then go into private practice and deal with their former employers.
A vivid example of such fence-hopping involves the Securities and Exchange Commission and Citigroup, as David S. Hilzenrath writes in a report for The Washington Post and Bloomberg.
Two years ago, Hilsenrath recounts, the SEC was considering charging Citigroup’s firm’s former chief financial officer with misleading investors by understating his firm’s exposure to subprime mortgages. “To help defuse the situation, Citigroup added to its legal team a criminal defense lawyer named Mark Pomerantz, who had some special qualifications,” Hilsenrath notes.
Special qualifications? Pomerantz was SEC enforcement director Robert Khuzami’s boss when both worked at the Department of Justice, and he had backed Khuzami for a promotion.
“On behalf of Citigroup, Pomerantz wrote to Khuzami in 2010 asking for a meeting,” Hilzenrath writes. According to a newly released report by SEC Inspector General H. David Kotz, “Pomerantz said he wanted to reinforce the point that charging the former executive with fraud ‘would have very large implications for Citigroup,’” Hilzenrath goes on.
In the eventual settlement, Citigroup paid a substantial fine, as did two of its executives, but neither the firm nor the individuals had to admit any wrongdoing.
Kotz rejected any suggestion that Citigroup executives avoided fraud charges as a result of “special access and preferential treatment.” Instead, his office “found that the settlements were part of a negotiation process that involved several members of the Enforcement staff,” Kotz’s report said.
But it might not be a stretch to conclude that the report is a reminder of how close the SEC enforcers can be to their potential adversaries, some of whom used to be on the other side of the fence.
