Former SEC general counsel David M. Becker said Thursday he has been wrongly criticized for helping steer SEC policymaking related to the Bernard Madoff fraud even though his mother’s estate included an account with Madoff.
“I didn’t think I had a conflict,” Becker said in testimony to Congress. “I did precisely what I was supposed to do,” he said, noting that he told the SEC chairman about the account and consulted an SEC ethics officer, who advised him that he could participate in the policymaking.
“This has been a dreadful experience for me,” he said of the controversy.
At a House hearing, Securities and Exchange Commission Chairman Mary Schapiro said she concurred in a 2009 SEC decision to keep Becker and his mother’s account out of the congressional spotlight.
Becker was going to represent the agency at a 2009 hearing to explain the SEC’s position on compensation for Madoff victims, but that would have called for him to make a public disclosure about the account, Schapiro said.
Schapiro said she supported an SEC staff member’s decision to send someone else to represent the agency.
Sending Becker and bringing up his mother’s account, she said, were “likely to divert attention” from the important legal issues under discussion, Schapiro said.
Lawmakers wanted to know why Schapiro nonetheless allowed Becker to work on Madoff issues, and why, as Rep. Randy Neugebauer (R-Tex.) asked, she didn’t make sure her fellow commissioners knew about Becker’s entanglement when they were voting on SEC policy.
Schapiro said it did not occur to her to notify the other commissioners. She said that when Becker first told her about his late mother’s account, she was focused on the financial crisis and the dire plight of Madoff victims, and the matter seemed far removed from the decisions the SEC was making.
Becker inherited some of the proceeds of the $2 million account and was sued last year to give back his share of bogus profits from Madoff’s giant Ponzi scheme.
In a report released Monday, SEC Inspector General H. David Kotz recommended that the Justice Department consider whether to prosecute Becker under federal conflict-of-interest law.
Becker played a key role in shaping the SEC’s position on how much money Madoff investors should be able to keep or recover in the Madoff bankruptcy, the inspector general reported. Those decisions “could have directly impacted his financial position,” Kotz said.
On Becker’s advice, the SEC took the position that Madoff investors should be entitled to more than just the amount of money they deposited with Madoff; they should also be entitled to an inflation adjustment as a fairness point. As Becker explained, an investor who deposited $10,000 with Madoff in 1998 suffered a greater loss than one who invested $10,000 in 2007.
While some lawmakers faulted Schapiro’s handling of the matter Thursday, no one was calling for her to resign. The inspector general’s investigation appeared to have been less of a blow to Schapiro than some observers had expected.
Rep. Darrell Issa (R-Calif.), chairman of the Committee on Oversight and Government Reform, praised her as “a consummate professional.”
Defending himself in public for the first time since he was sued to give back funds, Becker took aim at the SEC inspector general and his decision to refer the matter to the Justice Department. “I have seen Inspector General Kotz do this before — make a big fuss, lots of publicity about sending reports to the Justice Department,” Becker said. “Nothing has happened with any of them, and some of them, I recall from my time at the SEC, were laughable.”
“Is this laughable?” asked Rep. Patrick T. McHenry (R-N.C.).
“No, they say comedy is what happens to someone else and tragedy is what happens to you, so this is a tragedy,” Becker said.
In a prepared statement, Becker said he took a pay cut of more than 90 percent to become SEC general counsel in 2009 and “forfeited millions of dollars to serve my country” at a time of crisis for the agency.
He said he could not refuse when Schapiro recruited him by saying, “David, your country needs you.”
Some of the toughest questions Thursday involved someone who wasn’t on the witness list: former SEC commissioner Annette L. Nazareth.
While four SEC commissioners were left in the dark about Becker’s connection to the Madoff calamity, Nazareth knew about it, the inspector general reported. Representing Madoff victims, she made an appeal to Becker that the agency should recognize the full, phony balances shown on Madoff investors’ account statements, the inspector general reported.
“I was surprised by it,” Schapiro said. “I believe that they are friends.”
“Did it reek of insider, you know, insider doing?” McHenry asked.
“No, not to me,” Schapiro said. She noted that many former SEC officials have professional dealings with the SEC, adding, “It’s a fact of life we live with.”
Nazareth, a lawyer at the firm Davis Polk, did not respond to requests for comment.
The hearing was convened by subcommittees of the House Financial Services Committee and the Committee on Oversight and Government Reform.