SEC Under Fire Again in Madoff Investigation

September 21, 2011

The Justice Department has been asked to investigate a top SEC official who worked on compensation for Bernie Madoff’s victims despite having inherited a $2 million Madoff investment himself.

Yesterday, the SEC’s Office of the Inspector General (OIG) recommended that the DOJ look into whether David Becker, who was the SEC’s general counsel, violated conflict-of-interest laws. Becker and his brothers inherited the Madoff investment and closed the account shortly after their mother died in 2004. According to the OIG’s report, (PDF) Becker “participated personally and substantially in particular matters in which he had a personal financial interest,” and “the matters on which he advised could have directly impacted his financial position.”

The Wall Street Journal explains:

Mr. Becker participated in discussions about legislation that would have curbed Mr. Picard’s power to launch clawback suits to recover money from investors who withdrew more money from their Madoff investments than they put in, the report said. In the end, Mr. Becker opposed such legislation.

Mr. Becker also advised the commission on how Mr. Madoff’s victims should be compensated. [The Inspector General] is recommending the SEC redo a vote that determined the commission’s view on how victims should be compensated under the law.

Becker’s investment became public in February, when he was sued by Madoff trustee Irving Picard to recover $1.5 million in fictitious profits. But the OIG found that “at least seven” senior SEC officials previously knew about Becker’s account — including Chairman Mary Schapiro and several ethics officials. “Yet none of these officials recognized a conflict or took any action to suggest that Becker consider recusing himself from the Madoff Liquidation,” the report states.

Schapiro released a statement saying she took the OIG report “very seriously” and that she would schedule a new vote on the Madoff victims’ compensation, as recommended. She also defended Becker, saying, “I do want to state that I’ve known David for many years to be a talented, highly skilled lawyer and a dedicated civil servant who served under three chairmen.”

Becker, Shapiro and H. David Kotz, the inspector general, are all expected to testify at a congressional hearing on the issue tomorrow.

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