Huffpost Business

Ex-SEC Official Says He Got OK To Work On Madoff Claims Fund

Posted: Updated:
Former Securities and Exchange Commission general counsel David Becker (C) arrives before testifying to a joint hearing by the House Financial Services Committee Oversight and Investigations Subcommittee and House Oversight and Government Reform Committee TARP, Financial Services and Bailouts of Public and Private Programs Subcommittee September 22, 2011 in Washington, DC. | Getty

WASHINGTON -- The head of the Securities and Exchange Commission is facing increased scrutiny from lawmakers after a former top commission official said he was cleared to work on how victims of Bernard Madoff's scheme should be compensated, even though he benefited financially from Madoff's scheme.

The former SEC general counsel, David Becker, said in testimony to a House hearing Thursday that he was told by agency ethics officials he had no conflict of interest in helping craft the SEC policy.

"I still think that I did what I was supposed to do," Becker said. "I was advised that I had no conflict of interest in providing legal advice to the SEC" on the Madoff claims issue.

SEC Chairman Mary Schapiro was criticized at the hearing for allowing Becker to help set the policy even though he told her he had inherited a Madoff account from his mother. She acknowledged that she was wrong in 2009 to allow him to proceed.

The SEC inspector general has investigated the matter and asked the Justice Department to determine whether Becker violated conflict-of-interest laws.

Lawmakers say the affair has further eroded the public's trust in the SEC. The agency's reputation already was battered by its failure to detect Madoff's multibillion-dollar Ponzi scheme over the nearly two decades that it operated. Madoff pleaded guilty in 2009 to conducting a multibillion-dollar investment fraud. He is serving a 150-year sentence in federal prison.

"The Becker matter raises serious questions about the leadership of, and decision-making by, senior management at the SEC," Rep. Randy Neugebauer, R-Texas, chairman of the House Financial Services oversight subcommittee, said at the hearing. "The matter also illustrates significant flaws in the SEC's policies and procedures related to ethical conflicts."

The inspector general, David Kotz, said in a report issued Tuesday that Becker participated "personally and substantially" in issues in which he had a financial interest. On the advice of the federal Office of Government Ethics, Kotz said, he referred his findings to the Justice Department's Public Integrity Section for possible criminal prosecution.

Kotz's report said Becker advocated to the SEC commissioners that they recommend that the bankruptcy court in the case adopt a policy for valuing Madoff customer claims in a way that could have curbed the power of the court-appointed trustee to sue beneficiaries of the scheme – like Becker – to recover fictitious profits.

The trustee sued Becker and his brothers in February, claiming roughly $1.5 million of the $2 million in their mother's account was phony profit that should be returned to the fund for compensating defrauded Madoff customers.

The issue of valuing Madoff claims with an adjustment for inflation hasn't yet been decided by the court.

Becker told the hearing that he didn't believe he had a conflict of interest, and "I still think that I did what I was supposed to do." However, he added, "If I had known the trustee was going to sue me, of course I would have recused myself" from working on the issue.

Rep. Gary Ackerman, D-N.Y., told Becker: "I think you got blindsided while trying to do the right thing. ... It seems to me that you acted on the best of interests."

Ackerman's district encompasses the affluent north shore of Long Island that is home to many of Madoff's victims.

Schapiro testified that although Becker was cleared by the ethics office to proceed, "I also realize that, as chairman, I need to have a broader vision that goes beyond what may be required in any particular situation."

"In hindsight, I wish I had asked (Becker) more questions," Schapiro said. Since then, she said, the agency has tightened its ethics rules and programs in a way that should prevent a recurrence of that problem.

"What is clear about this situation is that you did make a mistake," Rep. Patrick McHenry, R-N.C., chairman of another House oversight subcommittee, told Schapiro.

And a Democrat, Rep. Elijah Cummings of Maryland, said he was concerned that the Becker case "raised serious questions about the SEC's ethics office processes."

Kotz's report lays out a "procedural breakdown" in the ethics process "that undermines the public's trust" in the agency, Cummings said.

Cummings also told Becker he was troubled that Becker had asked the ethics officials for advice "and now you find yourself in this difficulty."

Around the Web

S.E.C. Hid Its Lawyer's Madoff Ties -

David Becker, Top SEC Lawyer, Received Fraudulent Madoff Profits ...

SEC inspector general investigating agency's handling of Madoff fraud

Former SEC Lawyer's Ties to Madoff Face Scrutiny -

Judge Dismisses Suit Against SEC Over Madoff, But Still Rips ...

Lawyer Defends Role in SEC Madoff Case

SEC's Schapiro has apologized to colleagues over Becker matter

Some lawmakers doubt ex-SEC lawyer broke the law