SEC Former Top Lawyer Says He Had No Conflict in Madoff Case
Former U.S. Securities and Exchange Commission general counsel David Becker said he didn’t violate the law when he worked on policy about the Bernard Madoff case after inheriting money from the Ponzi scheme.
Becker, who stepped down in February, made the statement in remarks prepared for a U.S. House hearing today. He is testifying along with SEC Chairman Mary Schapiro and H. David Kotz, the inspector general who released a 119-page report this week calling for Becker’s conduct to be reviewed by federal prosecutors.
Kotz alleged that Becker could have benefited personally from a policy the lawyer advocated about how Madoff investors should be compensated for their losses.
“I had no financial interest in the position that the commission took,” Becker said in the testimony. He said he “did precisely what I was supposed to do” by seeking an opinion from the agency’s ethics lawyer that allowed him to work on the matter.
Becker and Schapiro may face a grilling at today’s joint hearing of Financial Services and Oversight and Government Reform subcommittees. Republican lawmakers have said Kotz’s findings reflect broader problems at the SEC.
“The disregard shown by the chief counsel, the ethics counsel and the chairman to the appearance of a conflict of interest raises legitimate questions about the judgment of all the SEC officers involved in this matter,” Financial Services staff members wrote in a memo prepared for committee members.
Schapiro, in her prepared remarks, faulted herself for failing to recognize the conflict presented by Becker’s inheritance, which she said she learned about when he rejoined the agency in 2009.
“While I understand that Mr. Becker did obtain clearance from the ethics counsel, I also realize that, as chairman, I need to have a broader vision that goes beyond what may be required,” she said. “I need to be acutely sensitive to any issue that could potentially interfere with the commission’s ability to fulfill its mission with the full confidence of the investing public.”
The SEC has been trying to restore its reputation after acknowledging that it missed opportunities to uncover Madoff’s decades-long fraud years before it unraveled in 2008. More recently, the commission has been under fire for destroying some enforcement documents and bungling a $557 million lease for new office space.
The agency’s troubles have been magnified as it grapples with writing dozens of new rules required by the Dodd-Frank regulatory overhaul, many of which are past due.
Kotz began his probe in March after Becker and his brothers were sued by the court-appointed trustee in the Madoff bankruptcy case to recover $1.5 million in what he termed fictitious profits from the inherited account.
When Becker joined the agency in 2009, he told Schapiro and William Lenox, then the agency’s ethics counsel, about his family’s Madoff investment, which had been liquidated after his mother’s death. Lenox told Becker in May 2009 that he didn’t have a financial conflict of interest and could work on the policy for compensating the victims.
Schapiro said the agency has already taken steps to overhaul the ethics office and the process for reviewing possible conflicts.
As general counsel, Becker advocated that Madoff investors be compensated for losses from an SEC-overseen insurance fund using a formula that adjusted for inflation. The argument, which was approved by the commission, could have made it less likely that the trustee would seek to reclaim profits from Becker.
If the method were used, the amount of money that the trustee would be able to seek from Becker and his brothers would have been reduced by about $140,000, Kotz said in the report.
Becker said in the testimony that he took a 90 percent pay cut to return to the SEC and at the age of 62 “forfeited millions of dollars to serve my country.” Becker said his only relationship with Madoff “is that in 1995 he defrauded my then 85-year-old father.”
He said that he sought an ethics ruling before working on the matter at the agency because “I had neither desire nor reason to skate close to the line.”
The public dispute over his conduct “has been a dreadful experience for me in ways there is no need for me to detail,” Becker said.
With assistance from Phil Mattingly in Washington --Editors: Lawrence Roberts, Dan Reichl
To contact the editor responsible for this story: Lawrence Roberts at email@example.com