Head SEC lawyer on 'Fabulous Fab' trial eyes law firms -sources

WASHINGTON Fri May 10, 2013 1:11pm EDT

WASHINGTON May 10 (Reuters) - The U.S. Securities and Exchange Commission's top trial lawyer, who is slated to try one of the agency's highest-profile cases stemming from the financial crisis, is testing the waters for prospective employment at leading law firms, three people familiar with the matter said.

Matthew Martens, the chief litigation counsel for the U.S. Securities and Exchange Commission, has recently been inquiring internally about whether certain prominent law firms, including Kirkland & Ellis; Paul, Weiss, Rifkind, Wharton & Garrison; WilmerHale; Latham & Watkins, and Cleary Gottlieb Steen & Hamilton, were involved in cases, these people said.

This summer, Martens is set to present the SEC's case in court against Fabrice "Fabulous Fab" Tourre, a former Goldman Sachs vice president. Tourre was the lone Goldman Sachs official sued in 2010 alongside the company. The SEC, in the securities fraud lawsuit, claimed that Goldman Sachs and Tourre failed to tell investors that a major hedge fund had helped to choose and bet against the subprime residential mortgage-backed securities underlying a complex product known as a "collateralized debt obligation."

Goldman later settled the case for $550 million without admitting or denying the charges, but Tourre is continuing the legal battle. The trial is set to begin on July 15.

Martens has recused himself in some instances from working on cases tied to certain law firms.

Recusals by SEC lawyers are generally a sign that they are engaged in employment talks or have been approached by a potential employer.

A MATTER OF ETHICS

Strict federal ethics codes prohibit employees from working on matters involving prospective employers.

The rules, however, are triggered fairly easily, and do not necessarily mean a person's departure is imminent.

Government employees must recuse themselves even if they have not yet responded to inquiries by prospective employers.

That means that until they officially reject an offer to talk, they must remain recused on matters involving the employers.

It is unclear how serious the talks are with Martens or if any of them will pan out.

SEC spokesman John Nester, speaking on Martens' behalf, said Martens has "not made any decision to leave the commission" and that if he did, it would not be before completing his work on the Tourre trial scheduled to begin on July 15.

Representatives for the five law firms did not respond to requests seeking comment about their recruiting efforts.

EXIT STRATEGY

If Martens did ultimately decide to leave the SEC this year, he would become the latest in a string of high-profile people to depart since the new SEC Chair Mary Jo White arrived in April.

Earlier this month, the SEC lost its top examinations director, Carlo di Florio; its top official in the Boston regional office, David Bergers, and Bruce Karpati, the chief of the SEC's asset-management enforcement unit.

Former SEC Enforcement Director Robert Khuzami, who also left the SEC early this year, has also been in talks for employment with some of the same law firms that Martens has inquired about, according to one person familiar with the matter.

That has fueled speculation among some insiders about whether the two may be trying to get hired as a pair.

Khuzami declined to comment. He has not announced his future employment plans.

Martens has been with the SEC for just shy of three years, according to his LinkedIn page.

He previously clerked for former Supreme Court Chief Justice William Rehnquist, as well as for Judge David Sentelle, who sits on the U.S. Court of Appeals for the District of Columbia.

Martens also held jobs in the criminal division of the Justice Department and the U.S. Attorney's office in North Carolina's Western District.

In addition to serving as lead trial attorney on the Tourre case, he has also been the lead attorney on other prominent cases, including SEC vs. SIPC and SEC vs. Citigroup Global Markets Inc.

In the first case, the SEC - for the first time in history - took the Securities Investor Protection Corp to court to try and force the industry-funded non-profit to launch a court proceeding so that investors who lost money in Allen Stanford's $7 billion Ponzi scheme can file claims.

Martens presented the oral arguments for the case, but a judge ruled against the SEC. The case is now being appealed.

In the Citigroup case, the SEC sued the bank and claimed it misled investors by selling a $1 billion collateralized debt obligation in 2007 as housing prices were falling, without revealing its bet against the underlying mortgages.

But District Judge Jed Rakoff rejected a proposed $285 million settlement because the bank did not admit to wrongdoing.

The SEC and Citigroup are now in the midst of appealing that decision as well.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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