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Watchdog: Ex-SEC's Becker should face criminal probe
September 20, 2011 / 3:47 PM / in 6 years

Watchdog: Ex-SEC's Becker should face criminal probe

Sarah N. Lynch

WASHINGTON (Reuters) - The former top lawyer at the Securities and Exchange Commission had a conflict of interest when he handled Bernard Madoff legal matters for the SEC and should be criminally investigated, the agency’s watchdog said on Tuesday.

In a scathing report, SEC Inspector General David Kotz said that former General Counsel David Becker “participated personally and substantially” in matters that could have “directly impacted his financial position.”

Kotz is referring the matter to the U.S. Justice Department. He said investigators should look into both Becker’s role in recommending a method to calculate compensation for investors in Madoff’s swindle, and his involvement in providing guidance on proposed legislation.

An attorney for Becker was reviewing the report and had no immediate comment.

Kotz’s report comes several months after news broke that Becker previously received an inheritance from his mother that included Madoff funds. An SEC ethics counsel cleared him to work on Madoff legal matters.

The Ponzi scheme being run at Bernard L. Madoff Investment Securities LLC was uncovered on December 11, 2008, and Madoff, 73, is now serving a 150-year prison sentence.

Shortly before Becker left the SEC early this year, Madoff trustee Irving Picard sued Becker and his two brothers for $1.5 million in alleged phony profits their mother’s estate received.

After leaving the agency, Becker returned to work for law firm Cleary Gottlieb in its Washington office.

The inspector general’s investigation concluded that “Becker participated personally and substantially in particular matters in which he had a personal financial interest by virtue of his inheritance ... and that the matters on which he advised could have directly impacted his financial position.”

Kotz’s report will be the subject of a U.S. House of Representatives hearing on Thursday in which Becker, Kotz, and SEC Chairman Mary Schapiro will testify.

Senator Grassley, whose office has also been inquiring about the Becker case, said the SEC needs to reform its ethics policies from top to bottom.

“It’s hard to see how the agency could have let such a major conflict of interest slide,” Grassley said in response to the report.


Kotz’s report confirmed that Becker was involved in helping the SEC craft a recommendation on how Madoff’s victims would be compensated, including whether some of the money could be clawed back from investors who withdrew more than they invested.

In particular, he advocated for a method that would benefit longer-term Madoff investors by adjusting the payments to account for inflation. The SEC ultimately voted in support of his recommendation, but the “constant dollar method” was never put into practice.

Kotz’s report said that at the time Becker was involved in crafting the recommendation, he was aware “there was a possibility the trustee would bring a clawback suit against him,” but nevertheless continued to work on the issue.

Aside from SEC Chairman Mary Schapiro, the other commissioners were unaware of the potential conflict at the time of the agency vote on which compensation method to recommend.

In a statement, Schapiro announced on Tuesday that the agency will seek a new vote.

“I take his report, which was published today, very seriously,” said Schapiro, who declined to comment specifically on the criminal referral.

Although the agency will re-do the vote, she also said that “the decision the commission made on that issue was appropriate under the law and in the best interest of investors” and she called Becker a “talented, highly skilled lawyer.”

In addition to recommending a method for Madoff victims to qualify for claims, Kotz’s report also found that Becker’s work on certain proposed legislation affecting clawbacks was also a potential conflict of interest.

Kotz also raised questions about the clearance former SEC ethics counsel William Lenox provided to Becker on two different occasions for him to work on Madoff matters for the agency.

Lenox’s opinions, Kotz said, were based on an “incorrect understanding” about the SEC’s role in the Madoff liquidation process.

Reporting by Sarah N. Lynch; Editing by Lisa Von Ahn and Tim Dobbyn

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