Pamela Chepiga (Allen & Overy)

Players on all sides of the Securities and Exchange Commission’s civil fraud case against Goldman Sachs & Co. and one of its employees are alumni of the U.S. Attorney’s office for the Southern District of New York.

The lawyer for Fabrice Tourre, the 31-year-old Goldman banker at the center of the charges involving a derivatives deal, is Pamela Chepiga, a partner at Allen & Overy LLP in New York. Chepiga headed the SDNY’s Securities and Commodities Task Force from 1982 until 1984.

At that time Barbara S. Jones – who is now the federal judge assigned to the Goldman case — was prosecuting the SDNY’s RICO case against four members of La Cosa Nostra’s  Bonnano family. Also in the 1980s, the man who would later become Goldman’s global compliance chief, Alan Cohen, had just joined the SDNY office as a budding prosecutor. Cohen would eventually succeed Chepiga in 1987 as securities and commodities task force chief.

Alan Cohen (Goldman Sachs)

By the time now-SEC Enforcement chief Robert Khuzami came on the SDNY scene as a prosecutor in 1992, Cohen had defected to O’Melveny & Myers, Jones was a judge and Chepiga was a securities lawyer in private practice.

Khuzami, 53, who made a name for himself prosecuting the 1993 World Trade Center bombing,  brought a new, aggressive, prosecutorial approach to civil enforcement at the SEC that is best epitomized by the Goldman suit.  He installed another SDNY veteran, George Canellos, at the helm of the SEC’s regional office in New York to help turn the agency around.

Not since former SDNY Chief Judge Michael B. Mukasey was nominated in 2007 to serve as U.S. Attorney General has there been as much buzz about SDNY alumni, former prosecutors say.  But given SEC Chairman Mary Shapiro’s decision to infuse the agency with SDNY alumni, it’s not surprising to find so many of them on all sides of a case like SEC-Goldman.

“What you have are highly motivated, very accomplished people who start out as prosecutors for the Southern District of New York and go on to take prominent roles in government, at companies and in private practice,” said former prosecutor Marcus Asner, a partner in Arnold & Porter’s New York office, who left the SDNY office in 2008.

Robert Khuzami (org)

Before joining the SEC, Khuzami was general counsel at Deutsche Bank Americas, where he advised bankers structuring the same kind of synthetic collateral debt obligations tied to subprime mortgages that are at issue in the SEC suit.  He has recused himself from all the agency’s dealings with Deutsche Bank.

In case against Goldman, the agency has accused Tourre of creating and selling the synthetic CDOs without disclosing that hedge fund Paulson & Co. helped pick them and was betting against them.

George Canellos (Milbank)

Khuzami, a registered Republican who in the past has said he twice voted for President George W. Bush, has also adopted a tool he used as a SDNY prosecutor: He did not alert Goldman before filing suit April 16.  The agency had warned Goldman in the form of a Wells notice last year that it was probing the CDOs and might eventually file suit. At a hearing in May before the Senate Banking Committee, Khuzami said, “We must convey to all defendants in SEC actions that not only do we assemble winning cases against them, but also we are prepared to go to trial and we will win.”

A former SDNY prosecutor in private practice said the SEC chose not to warn Goldman because the agency is now “using tougher prosecutorial tactics and it must really have some good stuff.”

Khuzami’s SEC tenure ultimately may be judged on whether the agency wins the Goldman case. The firm denies the charges.  The day he announced the case, Khuzami said: “The product was new and complex but the deception and conflicts are old and simple.”

Goldman’s lead lawyer Richard Klapper of Sullivan & Cromwell in New York, will be defending the firm with the assistance of former White House Counsel Greg Craig of Skadden Arps Slate Meager & Flom in Washington.

Samuel W. Seymour (Sullivan & Cromwell)

Although neither Klapper nor Craig were SDNY prosecutors, SullCrom partners Sam Seymour, an appeals maven, and Steven Peikin, a white collar criminal defense star are SDNY alumni waiting in the wings for the case to play out, two former colleagues said.

“It should be fascinating,” said Alan Kaufman of Kelly Drye & Warren in New York,  who previously served as chief of the Criminal Division in the U.S. Attorney’s Office for the Southern District of New York from 1999 to 2002. He was also a SDNY  AUSA from 1973 to 1980, including stints at the helm of the Official Corruption, Special Prosecutions Unit and the Organized Crime Strike Force.

Steven Peikin (Sullivan & Cromwell)

Last week, Goldman told reporters that the SEC’s case hinges on the actions of Tourre, who was charged with misleading investors about a mortgage-linked investment in 2007. Goldman placed  London-based Tourre on paid leave, as he was also meant to be de-registered from the Financial Services Authority.

Goldman General Counsel Greg Palm told Bloomberg: “If we had evidence that someone here was trying to mislead someone, that’s not something we’d condone at all and we’d be the first one to take action.”

Editor’s note: The following guest commentary from Ellen S. Podgor, a law professor at Stetson University College of Law in Gulfport, Fla., first appeared on the White Collar Crime Prof blog. Portions of it are reprinted below with permission.

To read the full commentary, click here. To see our story on the SEC’s changes, click here.

New SEC Rules – Commentary

By Ellen S. Podgor

The SEC has instituted a new initiative to provide for greater cooperation in hopes of encouraging individuals to assist in bringing to light improper activities. (see SEC Press Release) And cooperators may obtain a benefit of immunity in return for their cooperation (see Marketplace here). The framework for this cooperation can be found here. Some concerns -

• What if you are the last person in the chain and there is no one left to offer cooperation against – is it fair for cooperation to be a race to the SEC office? Will individuals with more resources be the ones to receive the most benefits, while poorer folks are left to suffer the consequences of others cooperating?
• It is clear that the SEC gives itself enormous discretion in deciding the value of the individual’s cooperation. The four factors listed as the outline for determining “whether, how much, and in what manner to credit cooperation by individuals” sound wonderful, but the outline is clearly subject to many different interpretations. For example, will everyone be in agreement as to “[w]hether the individual’s cooperation resulted in substantial assistance to the Investigation?” Also, the SEC will be determining if the person acted with scienter. Will those who could suffer consequences of an SEC action agree with the determination that is made?
• And what if the individual disagrees with the level of cooperation determined by the SEC, is there any place to obtain review? The rules explicitly state that it does not “create[] or recognize[] any legally enforceable rights for any person.”
• Does this really go beyond the powers that the SEC presently has now? If cooperation is offered, couldn’t they now decide not proceed against someone? Is this new initiative offered for a symbolic purpose?

To read the entire commentary, click here.

B. Todd Jones (Robins, Kaplan, Miller & Ciresi)

Minnesota U.S. Attorney B. Todd Jones intends to name as his deputy a prosecutor who clashed with Rachel Paulose, the brash young Bush administration official who once ran the office, a person familiar with his plans told Main Justice today.

Assistant U.S. Attorney John Marti, a line prosecutor in the office, also served as Paulose’s First Assistant. But she demoted him in April 2007 after he reported her for mishandling classified documents. Paulose’s 20-month tenure marked a period of intense turmoil in the Minneapolis-based office, and she became a symbol of the Bush Justice Department’s tendency to promote prosecutors based on ideology instead of competence.

Rachel Paulose (DOJ)

The U.S. Office of Special Counsel, an executive branch agency that deals with whistle-blower cases, determined last year that Paulose retaliated against Marti. ”Based on considerable evidence of intent, animus, and motive, OSC concluded that Ms. Paulose constructively demoted” Marti for reporting her conduct to Justice Department officials, according to a news release announcing the findings.

The Justice Department reached an agreement with Marti after the OSC investigation. He was given back pay and a lump-sum payment for damages. The department also agreed to remove any negative references from his personnel records.

Two other lawyers in the office resigned their management positions in protest of her policies and management style, and more threatened to defect if Paulose remained at her post. She resigned as U.S. Attorney in November 2007 after spending less than 20 months as Minnesota’s top federal prosecutor. Paulose was appointed by then-U.S. Attorney General Alberto Gonzales as an interim U.S. Attorney, at the age of 32. The Senate later confirmed her in December 2006.

Her predecessor, Tom Heffelfinger, was on a list of U.S. Attorneys slated for firing compiled by Kyle Sampson, Gonzales’ chief of staff. Heffelfinger, however, resigned before the firings.

Paulose is now a senior trial counsel in the Securities and Exchange Commission’s Miami regional office. Read Main Justice’s report about her new gig here.

Jones, a former Minnesota U.S. Attorney during the Clinton administration, is the first Senate-confirmed U.S. Attorney for the office since Paulose. He was sworn into office last week.

U.S. Attorneys typically change some of the leaders in their offices after they are sworn in.

Marti did not return a phone call seeking comment.

Joe Palazzolo contributed to this report.

Bill Johnson, head of the securities and commodities fraud unit in the Manhattan U.S. Attorney’s office, is joining Fried Frank. Read the WSJ Law Blog item here.

Johnson’s unit pursued Bernie Madoff, Marc Dreier and other recent high-profile financial criminals, the WSJ reports. He is a 1991 graduate of American University law school and began his career at the Securities and Exchange Commission.