The report also focused on a late 2009 congressional hearing where Becker, on Schapiro's recommendation, was slated to testify about the SEC's decisions on compensating Madoff victims.
Ultimately, another SEC official appeared at the hearing, in large part because of a determination that Becker's Madoff connection would have to be revealed if he were to appear as a witness in the matter, Kotz said.
While Schapiro said that she recalled telling Becker he would need to disclose the Madoff interest if he testified, Becker told the inspector general he was certain "it was I who told the chairman that I would disclose this rather than her telling me I would have to disclose it."
'Very Surprising'
Before news of the lawsuit against Becker came out earlier this year, none of the commissioners other than Schapiro was aware of Becker's Madoff connection. Commissioner Troy Paredes said "not to have been apprised of this potential conflict of interest was very surprising," according to the report. Commissioner Luis Aguilar said that Becker's ties "absolutely" gave him concern as to whether the information he received was completely unbiased.
Schapiro said she told the commissioners she was "deeply sorry that this had happened and that I never connected the dots," according to the report.
The inspector general recommended that the agency change its procedures for vetting potential conflicts, noting that Becker, as the agency's top lawyer, was Lenox's boss. In the future, Kotz said, the ethics counsel should report to the SEC chairman, not the general counsel.
The report noted that Lenox based some of his advice on an "incorrect understanding" of the SEC's role in the Madoff case and that he never "took any further steps to better understand the extent and nature of Becker's involvement" in the matter.
'Blame Me'
When questions arose in February 2011 concerning Becker's participation in the Madoff liquidation, Lenox told Becker in an e-mail: "Please just blame me; you did what you were supposed to do," according to the report.
Lenox's lawyer, Harvey Pitt, didn't immediately respond to a request for comment. Pitt has said that Lenox's advice "was thoughtful, correct and has been mischaracterized repeatedly."