By David S. Hilzenrath
Washington Post Staff Writer
Tuesday, March 1, 2011; 8:37 PM
House Republicans, who have raised questions about the conduct of the top lawyer at the Securities and Exchange Commission, ramped up their pressure Tuesday by calling on Chairman Mary Schapiro to address their concerns.
The four lawmakers wrote a letter asking Schapiro to explain what she knew or did about a potential conflict of interest involving the SEC's posture toward investors defrauded by Bernard L. Madoff's giant Ponzi scheme. The lawmakers' interest was piqued by a recent court disclosure that the SEC's general counsel inherited part of a Madoff account.
The Republicans also asked Schapiro to explain why an ethics official at the SEC advised the general counsel that he did not have to recuse himself from matters involving Madoff.
"It would be my personal opinion that he probably should have," said Rep. Randy Neugebauer (R-Tex.), chairman of the House Financial Services subcommittee on oversight and investigations.
The lawmakers are trying to determine if the SEC lived up to the same standards it demands of others, Neugebauer said.
"We think this is an issue that needs to be taken care of if there is laxity in the organization," he said.
David M. Becker, who returned to the SEC as general counsel in early 2009 and left last week, inherited part of a Madoff investment account when his mother died in 2004. He and his brothers liquidated the account in 2005. Madoff's investment business was exposed as a fraud in late 2008. Becker's inheritance came to light recently after a trustee trying to recover assets for Madoff investors sued Becker and his family to recoup more than $1.5 million of payouts from the account.
To return money to investors who lost money, the trustee has filed so-called "clawback" suits against many "net winners"- people who got more out of Madoff accounts than they put in.
In a letter to the House Republicans last week, Becker wrote that he told Schapiro about his inheritance around the time he rejoined the agency and acted on advice from the SEC ethics counsel.
In 2009, the SEC took a stand on issues affecting how much money Madoff investors were entitled to recover.
"I recognized that it was conceivable that this issue could affect my financial interests because the issue could affect the trustee's decision to bring clawback actions against persons like me," Becker wrote in his letter to the House members.
Becker said the ethics counsel told him he could participate in the matter because it "would not have a direct and predictable effect on on the trustee's decision to bring clawback actions" and because "a reasonable person . . . would not question my impartiality."
SEC spokesman John Nester declined to comment on the House members' letter.
The others who signed the letter included Rep. Spencer Bachus (R-Ala.), chairman of the Financial Services Committee.
The issue arises at a time when the SEC is trying to defend its budget against congressional cuts. House Republicans have raised concerns about the expanded regulatory role given to the agency as part of last year's financial reform legislation.