SEC's tough new cop seen helping agency's image

By Rachelle Younglai

WASHINGTON (Reuters) - The new top cop at the U.S. Securities and Exchange Commission is viewed as the best hope in years to root out financial fraud and convince fuming investors that the regulator that missed Bernard Madoff's massive fraud is up to the job.

Former federal prosecutor Robert Khuzami was picked to lead the SEC's enforcement division at a time when investor confidence had been shattered during the worst financial crisis in decades.

It was bad enough that trillions of dollars evaporated from global markets and the government had to rescue Wall Street firms, but then it emerged in December that the SEC had failed to uncover Madoff's $65 billion Ponzi scheme despite warning signs and complaints.

This glaring lapse triggered a wave of criticism from lawmakers, who have publicly slammed the SEC and demanded a more aggressive approach.

"Bringing him on board is a good sign that the SEC is returning to its role as a strong cop on the beat and an aggressive regulator of our capital and financial markets," said Senator Jack Reed, the Rhode Island Democrat who chairs the banking subcommittee on securities which oversees the SEC.

SEC Chairman Mary Schapiro announced her selection of Khuzami in February, less than a month after she was sworn in. As part of her effort to reinvigorate the enforcement division, Schapiro has also launched a review of how the SEC handles the hundreds of thousands of tips it receives every year.

Khuzami, 52, has vowed to work swiftly and strategically and is taking a hard look at how the enforcement division operates. One week into the job, Khuzami told Reuters in an interview on April 3 that a "compelling case can be made the SEC needs more resources."

At the same time, he said "that does not relieve us of our obligation to use our resources as efficiently as we can and examine our own processes and get more out of the same."