(AP Photo/In the aftermath of Bernard Madoff’s epic investment fraud, the Securities and Exchange Commission was considering sending David M. Becker, the agency’s general counsel at the time, to testify on Capitol Hill on issues affecting how much money Madoff’s account holders could recover, according to a source familiar with the matter.)

In the aftermath of Bernard L. Madoff’s epic investment fraud, the Securities and Exchange Commission was considering sending David M. Becker, the agency’s general counsel at the time, to testify on Capitol Hill on issues affecting how much money Madoff’s account holders could recover, according to a person familiar with the matter.

But there was a wrinkle: Becker’s mother had held an account with Madoff that Becker and his brothers, heirs to her estate, liquidated before the fraud was exposed. Becker told a senior SEC official that if he testified before Congress, he should disclose the account, the source said.

Instead of sending Becker, the SEC sent one of his subordinates, deputy solicitor Michael A. Conley, to explain the SEC’s position, according to the source, who was not authorized to discuss the matter publicly and spoke on the condition of anonymity.

Much later, when the liquidated account came to light, it became a major black eye for the SEC. Lawmakers accused the agency of glossing over a potential conflict of interest.

Inspector general’s report

As SEC Inspector General H. David Kotz prepares to issue a report on his probe of the Becker matter, the decision to have someone else testify for the SEC is coming under scrutiny. It has been a point of inquiry in the inspector general’s probe, the source said.

A second person familiar with the matter, who spoke on the condition of anonymity for the same reason, said the episode raises a question: Did the SEC keep Becker and the Madoff account out of the congressional spotlight because it realized it had a problem, even as the agency allowed Becker to help shape its policy on Madoff’s victims?

Becker and SEC Chairman Mary Schapiro discussed the fact that someone else would be testifying instead of Becker, the first source said.

Becker, through attorney William Baker III, declined to comment.

Conley did not return a call for comment. Eric J. Spitler, the SEC’s head of legislative affairs, referred questions to the agency’s public affairs office.

John Nester, the head of public affairs, declined to comment in advance of the inspector general’s report, and the inspector general declined to comment on the substance of his investigation. He said he plans to circulate his report within the SEC by the end of next week. The oversight and investigations subcommittee of the House Financial Services Committee is planning to hold a hearing on the matter after that.

The subcommittee chairman, Rep. Randy Neugebauer (R-Tex.), said Friday that he wants “to make sure that this agency holds itself internally to the same standards that it holds the people that it regulates.”

The Becker matter is one of several agency investigations that the inspector general is wrapping up. Others involve the destruction of documents from closed enforcement cases and an anonymous tip that preferential treatment prompted the SEC to pull its punches in a Wall Street investigation. Another about the SEC’s conduct in a case involving Dallas Mavericks owner Mark Cuban has been completed but not released to the public.

Conflict concerns

Becker’s potential conflict in the Madoff issue came to light early this year after a trustee trying to recover money for Madoff victims sued Becker and his brothers to recoup more than $1.5 million of “fictitious profit” withdrawn from their mother’s account. The trustee has sued many “net winners” in Madoff’s Ponzi scheme — those who got more money from Madoff than they deposited with him — to redistribute those profits among net losers.

Becker was not working at the SEC when he and his brothers liquidated the account, and he returned to his private legal practice in the wake of the controversy.

But in 2009, he became a senior adviser to Schapiro and general counsel at the agency. The agency was soon called upon to address complex legal questions affecting how much money victims were entitled to recover in the Madoff bankruptcy. The SEC oversees the Securities Investor Protection Corp. (SIPC), which can make payouts of up to $500,000 per customer when brokerage firms fail.

Becker disclosed his situation to an SEC ethics official and got a green light to participate in the SEC’s work on victim compensation. Becker has told congressional investigators that he also notified Schapiro about the account his mother left behind.

Schapiro has told lawmakers that she did not recall asking Becker for additional information. At a March congressional hearing, she said she wished Becker had recused himself from the matter.

“When Mr. Becker initially notified me that his deceased mother had had a Madoff account that had been closed years earlier, the issue did not appear to me to present a conflict of interest,” Schapiro said in a March letter to members of Congress.

How Becker’s personal interests might have been affected by the SEC’s position on the recovery of funds for Madoff’s victims is not clear. The SEC argued that investors were not entitled to the fictitious gains shown on their Madoff account statements. But the agency said that Madoff’s investors should receive an inflation adjustment on amounts deposited with Madoff, which is more than SIPC supported.

On Dec. 9, 2009, it was deputy solicitor Conley who explained the SEC’s position to a House panel.

“I can assure you that the Commission and its staff have been and remain committed to ensuring that Madoff investors’ interests are protected in the ongoing liquidation proceeding,” he said in his written testimony.