SEC enforcement chief Linda Thomsen resigns, replacement not named

WASHINGTON - The top cop at the U.S. Securities and Exchange Commission is leaving the government less than a week after receiving an angry dressing-down before Congress over the agency's failure to detect a massive alleged fraud scheme.

The SEC said Monday that Linda Thomsen is leaving to pursue opportunities in the private sector, but did not provide further details. She has been the agency's enforcement director since May 2005, under two previous SEC chairmen.

A replacement for Thomsen wasn't named. The leading candidate was Robert Khuzami, a former federal prosecutor who is managing director and general counsel of investment firm Deutsche Bank.

Khuzami didn't return a telephone call to his office Monday. SEC spokesman John Nester declined to comment.

Mary Schapiro late last month became SEC chairwoman, and it's not unusual for new heads of the agency to replace the enforcement director. But Thomsen became a lightning rod for criticism over the SEC's failure to detect the stunning US$50-billion Ponzi scheme allegedly run by money manager Bernard Madoff, despite red flags raised to the agency staff by outsiders over the course of a decade. The announcement of her departure came a few days after Schapiro outlined new actions intended to strengthen and streamline the agency's enforcement efforts.

Thomsen was front and centre at a Feb. 4 hearing by a House subcommittee investigating the Madoff affair and the enforcement breakdown at the SEC. She was put on the defensive by lawmakers and forced to defend the SEC's position that she and other officials couldn't publicly discuss details of the matter because of an ongoing investigation by the agency's inspector general.

On Monday, the SEC announced an agreement with Madoff that could eventually force him to pay a civil fine and return money raised from investors. The partial judgment renders permanent a preliminary injunction that froze Madoff's assets after his arrest in December. It is separate from the criminal case against him.

Thomsen, 54, who was the first woman to hold the chief enforcement job at the SEC, had been deputy enforcement director before taking the top spot. As enforcement director, she led the SEC investigation of fallen energy giant Enron Corp., which began in late 2001, and a number of other high-profile cases.

Led by Thomsen, the SEC secured settlements with major banks to buy back a total of more than $50 billion in auction-rate securities from investors who bought the risky bonds before the market for them collapsed a year ago, the agency said in a news release. It also cited enforcement cases against corporations accused of bribery in their foreign operations, cases involving subprime mortgage and financial fraud, and major enforcement actions against hedge funds during Thomsen's tenure.

"Linda's achievements have been nothing short of extraordinary, even heroic, in an era of unprecedented challenges in our securities markets," Schapiro said in a statement. "Linda has distinguished herself in public service through her keen intellect, profound understanding of our securities laws and relentless pursuit of wrongdoers."

Prior to the blowup over the SEC's failure in the Madoff scandal, there were other controversies involving Thomsen. The SEC inspector general, H. David Kotz, late last year recommended disciplinary action against Thomsen and another enforcement official over the handling of an insider-trading probe touching on big hedge fund Pequot Capital Management and a prominent Wall Street executive.

Kotz said he found there were "serious questions" about the impartiality and fairness of the SEC's investigation of Pequot. A former SEC attorney who worked on the probe and was fired by the agency has alleged there was political interference in the probe by agency officials. His allegations became public in 2006 and prompted an investigation by Republican staff of the Senate Judiciary and Finance Committees.

The SEC took no enforcement action in the Pequot case, which it closed two years ago - but recently reopened after new information surfaced. The hedge fund has denied any wrongdoing.

An administrative law judge at the SEC, Brenda Murray, in November rejected Kotz's request for disciplinary action against Thomsen and the other official. Murray wasn't acting in her capacity as an administrative judge but as an SEC official asked to assess Kotz's recommendations.

Thomsen, who joined the SEC in 1995, rose through the enforcement division ranks and was named to lead it in May 2005 by then-SEC Chairman William Donaldson. Before going to the agency, she was in private law practice and also was an assistant U.S. attorney in Maryland.