Robert Khuzami Is Cashing In and There's Nothing Wrong With That

Moneybox
A blog about business and economics.
July 23 2013 9:53 AM

The SEC's Top Cop Is Cashing In as a Wall Street Lawyer, and You Should Feel OK About It

136019283
Robert Khuzami, is soft on pie charts

Photo by Win McNamee/Getty Images

Robert Khuzami stepped down as director of the Enforcement Division at the Securities and Exchange Commission about six months ago, which naturally prompted speculation about where he would land. Today's New York Times has the story from Ben Protess and Peter Lattman about his new gig at Kirkland & Ellis, a major corporate law firm, complete with all the gory details about the pay package ("more than $5 million a year"), the benefits, the other big firms that wanted to recruit him, and most of all "the quintessential Washington script: an influential government insider becoming a paid advocate for industries he once policied."

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.

Advertisement

That's not to say that the bad rent-seeking version of the revolving door never happens. Clearly it does happen. But different contexts are different. One salient issue, it seems to me, is the existence of collective action problems. It wouldn't really make sense for Kirkland & Ellis (or any other major law firm) to spend millions of dollars to reward a specific individual for lax enforcement whose benefits are widespread. By contrast, when you see people moving to head trade associations that's when you ought to worry. The whole reason an American Petroleum Institute and Financial Services Roundtable exist is to advance the collective interests of the oil and banking industries respectively. Those are institutions that are well-situated to reward generally favorable treatment toward industry. A law firm is in a structurally different situation. But my main point is that we don't need to speculate on this sort of thing a priori, which is why I mentioned the paper by Ed DeHaan, Simi Kedia, Kevin Koh, and Shivaram Rajgopal which gives us specific evidence on the Securities and Exchange Commission. There are lots of other government agencies out there and lots of other forms of private sector employment, and it'd be great to see more specific research on revolving doors in those other contexts. But in Khuzami's case, I think the logic and evidence suggests that you should take his payday at face value: If you find yourself as enforcement chief at the S.E.C. the best way to get a multimillion dollar payday down the road is to try to make impressive cases and demonstrate mastery over the relevant legal and bureaucratic issues.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

Smash and Grab

Will competitive Senate contests in Kansas and South Dakota lead to more late-breaking races in future elections?

I Am 25. I Don’t Work at Facebook. My Doctors Want Me to Freeze My Eggs.

The XX Factor
Oct. 20 2014 6:17 PM I Am 25. I Don’t Work at Facebook. My Doctors Want Me to Freeze My Eggs.

Republicans Want the Government to Listen to the American Public on Ebola. That’s a Horrible Idea.

The Most Ingenious Teaching Device Ever Invented

Tom Hanks Has a Short Story in the New Yorker. It’s Not Good.

Brow Beat

Marvel’s Civil War Is a Far-Right Paranoid Fantasy

It’s also a mess. Can the movies do better?

Watching Netflix in Bed. Hanging Bananas. Is There Anything These Hooks Can’t Solve?

The Procedural Rule That Could Prevent Gay Marriage From Reaching SCOTUS Again

  News & Politics
Politics
Oct. 20 2014 8:14 PM You Should Be Optimistic About Ebola Don’t panic. Here are all the signs that the U.S. is containing the disease.
  Business
Moneybox
Oct. 20 2014 7:23 PM Chipotle’s Magical Burrito Empire Keeps Growing, Might Be Slowing
  Life
Outward
Oct. 20 2014 3:16 PM The Catholic Church Is Changing, and Celibate Gays Are Leading the Way
  Double X
The XX Factor
Oct. 20 2014 6:17 PM I Am 25. I Don't Work at Facebook. My Doctors Want Me to Freeze My Eggs.
  Slate Plus
Tv Club
Oct. 20 2014 7:15 AM The Slate Doctor Who Podcast: Episode 9 A spoiler-filled discussion of "Flatline."
  Arts
Brow Beat
Oct. 20 2014 9:13 PM The Smart, Talented, and Utterly Hilarious Leslie Jones Is SNL’s Newest Cast Member
  Technology
Future Tense
Oct. 20 2014 4:59 PM Canadian Town Cancels Outdoor Halloween Because Polar Bears
  Health & Science
Medical Examiner
Oct. 20 2014 11:46 AM Is Anybody Watching My Do-Gooding? The difference between being a hero and being an altruist.
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.