WASHINGTON (Reuters) - The former top attorney at the Securities and Exchange Commission will defend himself on Thursday against allegations that he had a conflict of interest when handling legal matters related to convicted swindler Bernard Madoff.
“I did precisely what I was supposed to do,” former SEC General Counsel David Becker will tell U.S. lawmakers at a hearing convened to explore the allegations.
“I identified a matter that required legal advice from the SEC’s ethics office. I sought advice, received it, and followed it,” Becker says in written testimony for the hearing.
Becker’s appearance will come just two days after the SEC’s Inspector General David Kotz released a report finding that Becker should have recused himself from handling Madoff matters because he and his brothers had inherited $2 million in Madoff funds.
Kotz is referring his findings to the U.S. Justice Department for possible criminal investigation.
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.
Becker, Kotz and SEC Chairman Mary Schapiro are all expected to face tough questioning at Thursday’s hearing, especially by House of Representatives Republicans who are already frustrated with the SEC and looking to make cuts to its budget.
Becker, now a partner with law firm Cleary Gottlieb, was sued shortly before departing the SEC in February by Madoff trustee Irving Picard. The trustee filed a clawback lawsuit against Becker and his two brothers for $1.5 million in alleged phony profits their mother’s estate received.
Prior to the lawsuit, Becker participated in several important legal matters related to Madoff, including recommending to method to calculate compensation for investors in Madoff’s Ponzi scheme.
Kotz’s report suggested that Becker stood to gain financially from his participation, especially because he advocated for a calculation method that benefited longer-term investors by adjusting accounts for inflation.
But Becker will reject that assertion on Thursday, saying he had “no financial interest” in the recommendation voted on by the SEC. Becker also plans to dispute an allegation in Kotz’s report that he was aware of the possibility of clawbacks, saying in fact he actually viewed it as being highly “unlikely.”
“For those who I think I acted in my financial interest, I would point out that I took a pay cut of over 90 percent to return to the SEC,” he said in the prepared remarks. “I, like many others, forfeited millions of dollars to serve my country.”
He will also say that the money from the Madoff account his mother had was liquidated well before the fraud was known, and used to pay off real-estate taxes. Although he was named as a coexecutor of her will, he said, he did “very little” in that role and “absolutely nothing with respect to financial matters.”
Becker said the whole experience has been “dreadful for him” and took a swipe at the culture of fear he said had engulfed the SEC.
Kotz issued a blistering report in 2009 saying regulators missed numerous chances to catch Madoff earlier, failing to follow up on tips and suspicious activity.
“I’ve had more than a few people in my office weeping with fear about what might happen to them because one person or another was looking into their behavior,” Becker said, quoting from a speech he gave when he departed the SEC.
“It is a symptom of the times and a political culture that is, quite frankly, seriously nuts.”
Reporting by Sarah N. Lynch; Editing by Tim Dobbyn