(Bloomberg News) The former top lawyer of the U.S. Securities and Exchange Commission should be investigated by federal prosecutors for improperly working on policy related to Bernard Madoff's fraud when he had a financial interest in the outcome, the SEC's internal watchdog said.
David Becker, the SEC general counsel who inherited profits from a family Madoff account, became the agency's point person on questions of how to compensate investors who were bilked in the Ponzi scheme, inspector general H. David Kotz said in a report sent to Congress today. The decisions Becker made "could have directly impacted his financial position," Kotz wrote.
Kotz said he is referring the conflict-of-interest case to the Justice Department. He also noted in his 119-page report that SEC Chairman Mary Schapiro didn't tell other commissioners about Becker's ties to Madoff. At least six other people at the agency were aware of the investment, including the chief ethics lawyer who gave Becker clearance to work on Madoff policy. None of them suggested Becker recuse himself, Kotz wrote.
William Baker III, a lawyer for Becker, said the report "contains a number of critical factual and legal errors that lead to erroneous conclusions." He said Becker, who left the agency in February, is looking forward to explaining his actions at a House of Representatives hearing on Sept. 22, where Kotz and Schapiro also are scheduled to appear.
Laura Sweeney, a Justice Department spokeswoman, declined to comment except to say the agency has received the referral.
Culture
Kotz's report also urged the SEC to overhaul its procedures for providing advice on conflicts to officials, saying there have been "concerns about the role and culture" of the agency's ethics office.
The findings are another setback for the securities regulator, which has been trying to bolster its standing after being castigated for failing to uncover Madoff's decades-long fraud. More recently, the commission has been under fire for destroying some enforcement documents and bungling a $557 million lease for new office space.
The troubles have been magnified as the agency grapples with writing dozens of new rules for Wall Street under the 2010 Dodd-Frank financial-regulatory overhaul.
"Clearly, Chairman Schapiro assumed that she and her management team were above any possible reproach and needn't worry about the federal conflict-of-interest law," said Representative Patrick McHenry, a North Carolina Republican who will help lead the hearing later this week. "That is an assumption no regulator should ever be allowed to make."
'Dedicated'