WASHINGTON (Reuters) -U.S. Securities and Exchange Commission Chairman Mary Schapiro told lawmakers on Thursday she has apologized to fellow commissioners for failing to disclose a potential conflict of interest by the SEC’s former top lawyer.
“It did not frankly occur to me to direct him to tell the commissioners,” SEC Chairman Mary Schapiro said. “I wish I had told them.”
Thursday’s hearing came in response to a report issued earlier this week by the SEC’s Inspector General David Kotz, who found that the agency’s former General Counsel David Becker should have recused himself from handling Bernard Madoff matters because he had inherited $2 million in Madoff funds.
The Ponzi scheme being run at Bernard L. Madoff Investment Securities LLC was uncovered on December 11, 2008.
Kotz said the agency’s ethics office had recommended referring his findings to the U.S. Justice Department for possible criminal investigation. Becker, who received a clearance from the SEC’s ethics counsel before he worked on Madoff matters, has maintained he did nothing wrong. He is testifying at the hearing on Thursday.
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 the method to calculate compensation for investors in Madoff’s Ponzi scheme.
The method advocated by Becker contained a component that would have helped longer-term investors by adjusting their accounts for inflation. Critics, including Kotz, have said this recommendation could have a direct impact on Becker’s financial position.
In a closed-door meeting in 2009, the SEC’s five commissioners were asked to vote on the recommendation, and of them, Schapiro was the only one who was aware that Becker’s deceased mother once had a Madoff account.
After learning of the clawback suit earlier this year, commissioners were upset they had not been informed of the potential conflict.
Earlier this week, Schapiro said the agency will now have a re-vote on the recommendation. On Thursday, she disclosed that the SEC will go even further by completely re-analyzing the issue.
Both Democrats and Republicans on Thursday expressed disappointment in the SEC’s handling of the Becker matter. But while they said they felt Schapiro had made a mistake, they stopped short of criticizing her leadership and even went out of their way to praise her track record.
“You have a wonderful reputation,” said Congressman Patrick McHenry, the chairman of a House Oversight panel. “What is clear about this situation is you did make a mistake. And you admitted as such.”
Reporting by Sarah N. Lynch; editing by Carol Bishopric