SEC inspector general probing agency's handling of Madoff fraud

Washington Post Staff Writer
Friday, March 4, 2011; 10:31 PM

When an 85-year-old social worker named Dorothy G. Becker died in 2004, her obituary noted her teaching, her dedication to the poor and her passion for painting. There was no sign that the will she left behind would spawn political recriminations and Washington investigations focused on the leadership of the Securities and Exchange Commission.

But included in her estate was a $2 million account with Bernard L. Madoff. And when one of her heirs, her son David, later took a top job at the SEC, he would play a role in addressing Madoff's giant Ponzi scam.

On Friday, the SEC's inspector general said he had opened a probe into whether the SEC had mishandled a potential conflict of interest in responding to the Madoff affair. The action by H. David Kotz came days after congressional Republicans began pressing SEC Chairman Mary Schapiro to account for what she knew and did about the alleged conflicts.

Members of Congress are accusing the SEC of turning a blind eye to potential ethical pitfalls when it allowed David M. Becker to help frame its response to the fallout from the Madoff fraud. The House's most powerful investigator, Rep. Darrell Issa (R-Calif.), has added the issue to his high-stakes agenda.

In a letter Friday to Becker, the lawmakers said, "It is difficult to understand how you and other SEC officials would not realize the strong appearance of impropriety created by your participation in Madoff matters after receiving proceeds from a Madoff account."

The story of Becker's inheritance shows how sparks can unexpectedly ignite into politically charged Washington scandals. It has also prompted questions as to how rigorously the SEC has reformed itself since 2008, when the failure to expose Madoff's Ponzi scheme became a searing humiliation.

For Schapiro, who took office after Madoff was arrested, the concerns about Becker have added an unwelcome challenge at a difficult time. Schapiro has vowed to reform the agency, and she has her hands full putting in place new measures required by the financial reform law enacted by Congress last year.

The Becker matter has given critics of the SEC a new club to bludgeon the agency at a time when Congress is looking to cut the budgets of federal agencies. SEC leaders warn that a lack of funding could compromise the policing of Wall Street.

SEC spokesman John Nester said Schapiro asked the inspector general to review the Becker matter "to ensure an independent gathering and analysis of the relevant facts."

Issa and Sen. Charles E. Grassley (R-Iowa) have given her until 5 p.m. Monday to answer 35 detailed, multiple-part questions about the Becker matter. The interrogatories bear more than a faint echo of the Watergate refrain: What did she know and when did she know it?

For Becker, who is returning to the private sector after ending a second tour of duty at the SEC a week ago, the brouhaha has clouded what might otherwise have been a triumphant exit. He spent his last day as an SEC employee answering questions on Capitol Hill from staff members of Issa's Committee on Oversight and Government Reform and the Senate Judiciary Committee.

Becker first worked at the SEC from 1998 to 2002 as deputy general counsel and then general counsel. He was described by former SEC chairman Arthur Levitt in an interview as "scrupulously honest, sensitive and intelligent . . . a very wise man."

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