(Bloomberg News) Lawmakers grilled U.S. Securities and Exchange Commission Chairman Mary Schapiro over what they called a breakdown in ethics that allowed the agency's former top lawyer to work on policy related to the Bernard Madoff fraud after he inherited money from the Ponzi scheme.
"This is simply unacceptable," Representative Elijah Cummings, a Maryland Democrat, told Schapiro. "I continue to have grave concerns and serious questions about the procedural breakdown in the SEC's ethics process."
Today's hearing in Washington was called by members of the House Financial Services and Oversight and Government Reform committees to highlight a 119-page report issued earlier this week by the SEC's inspector general. The report concluded that the agency's former general counsel, David Becker, may have violated criminal law by taking a lead role in deciding how Madoff investors should be compensated for their losses.
Becker, who sought and received clearance from the SEC's ethics counsel to work on the matter, told lawmakers that he "did precisely what I was supposed to do."
He said the dispute has taken a toll on him and that he's "extremely depressed and very sad that this has been a dreadful experience for my friend Mary Schapiro and the SEC, as well."
The report comes as the SEC has been trying to restore its reputation after acknowledging that it missed opportunities to uncover Madoff's decades-long fraud years before it unraveled in 2008. Both Republicans and Democrats at the hearing said the watchdog's findings show that more fixes are needed at the agency.
"We are deeply concerned that we've now had two strikes on Bernie Madoff," said Representative Darrell Issa, a California Republican and chairman of the oversight committee. "How are we going to make sure we don't have a third?"
Schapiro told the lawmakers that she is overhauling the agency's procedures for vetting conflicts of interest, and she took part of the blame for the firestorm over Becker's work.
"I need to be acutely sensitive to any issue that could potentially interfere with the commission's ability to fulfill its mission with the full confidence of the investing public," she said.
Inspector General H. David Kotz began his probe in March after Becker and his brothers were sued by the court-appointed trustee in the Madoff bankruptcy case to recover $1.5 million in what the trustee termed fictitious profits from the inherited account.
When Becker joined the agency in 2009, he told Schapiro and William Lenox, then the agency's ethics counsel, about his family's Madoff investment, which had been liquidated after his mother's death. Lenox told Becker in May 2009 that he didn't have a financial conflict of interest and could work on the policy for compensating the victims.
Becker left the SEC in February to return to his private law firm.
Today, Becker said that he thinks the trustee has overstated the profits that he got from the account. After paying estate taxes and dividing the inheritance, Becker said he received about $10,000 to $15,000.
Several Democrats at the hearing said they were less concerned about Becker's case than what it said more broadly about the SEC ethics process. They also told Becker they were surprised he would testify with the threat of a Justice Department investigation hanging over his head.
"My objective is to get the truth out. It's as simple as that," Becker said. "I've got nothing to hide."
Becker took issue with Kotz's decision to send his case to the Justice Department, saying the inspector general uses criminal referrals to "get lots of publicity" for his investigations.
"I've seen Inspector Kotz do this before," Becker said, adding that a number of the watchdog's previous referrals "were laughable."