The revelation this week that the top lawyer at the Securities and Exchange Commission inherited an investment account that was run by Bernard Madoff has House Republicans asking questions.
In a letter sent to SEC Chairman Mary L. Schapiro on Thursday, four senior Republicans on the House Financial Services Committee, including Chairman Spencer Bachus (Ala.), asked a series of questions that appeared to explore whether the matter created any conflict of interest for the agency.
SEC General Counsel David M. Becker raised the issue when he rejoined the agency in 2009, and the SEC ethics office told him that the fact that he and his brothers had inherited a Madoff account did not prevent Becker from participating in the SEC’s work on “certain Madoff-related matters,” SEC spokesman John Nester said.
The SEC went on to file friend-of-the-court legal briefs weighing in on questions that involve how much money Madoff’s investors might recoup. Becker signed one of the briefs. It is not clear whether or how the positions the SEC staked out could affect Becker’s financial interests.
The trustee trying to recover funds for Madoff’s investors has sued Becker as an heir to and executor of his mother’s estate. When Becker’s mother died in 2004, she held a Madoff account with a reported balance of more than $2 million, which the Becker brothers liquidated in 2005.
The trustee alleges that the Beckers withdrew more than the family had deposited in the account and that, like many other “net winners” in the Ponzi scheme, the Beckers were paid with other people’s money. The trustee wants to take back more than $1.5 million of the Beckers’ payouts.
In their letter, the House Republicans asked whether Becker told anyone at the SEC about his Madoff connection when he rejoined the agency in 2009, shortly after Madoff’s investment business was exposed as a multibillion-dollar fraud. The House members also asked whether Becker formally recused himself “from all aspects of the SEC’s involvement with Bernard L. Madoff Investment Securities” and whether he notified the SEC’s ethics office about the matter.
“It gets to the heart of how does the SEC runs itself now,” Financial Services Committee spokesman Jeff Emerson said.
In a statement, Nester said Becker “sought advice from the Ethics office, and was advised that the liquidated account was not a basis for disqualification from participation in certain Madoff-related matters.”
In legal briefs, including one signed by Becker, the SEC has agreed with other authorities that investors’ claims in the Madoff bankruptcy should be limited to what they put in minus what they took out — rather than the higher fictitious balances Madoff showed on account statements.
But the SEC has disagreed with other authorities in one respect: It has argued, in effect, that investors should be entitled to the interest earned on the money they deposited with Madoff.
The Securities Investor Protection Corp., which insures accounts at failed brokerages within certain limits, does not think the federal law at issue “has any provision for the time value of money,” SIPC President Stephen P. Harbeck said.
When Harry Markopolos, the New York accountant who tried unsuccessfully to get the SEC to see through the Madoff scam, met with the SEC chairman after Madoff’s arrest, Becker attended. According to Markopolos’s book, Becker and Markopolos did not exactly hit it off.
When Markopolos said he was going to share additional investigative leads with the Department of Justice and other authorities but not with the SEC, Becker objected, Markopolos wrote in “No One Would Listen: A True Financial Thriller.”
“Maybe he simply was insulted that I had called his agency incompetent ... but whatever the reason, he was furious,” Markopolos wrote.
Becker told Markopolos that, as the general counsel, he could not hear information and be put in a position where he could not do anything about it, Markopolos wrote.
When the meeting ended, Markopolos wrote, he shook hands with Schapiro and another SEC official, “but not with David Becker.”
Staff researcher Alice R. Crites contributed to this report.