House Republicans have stepped up their letter writing campaign questioning the Securities and Exchange Commission’s handling of its recently departed general counsel’s ties to Bernard Madoff.
The Washington Post reported Tuesday that four GOP lawmakers questioned SEC Chairman Mary Schapiro about her knowledge of a potential conflict of interest created by GC David Becker’s decision not to recuse himself from handling Madoff matters for the agency.
Becker was named as a defendant in a clawback suit (pdf) filed by Madoff trustee Irving Picard, who is seeking to recover more than $1.5 million from Becker and his brothers. They inherited allegedly fictitious profits from their mother’s estate in 2005. The New York Daily News reported Saturday that Becker’s father, who died in 2000, also profited from investments with Madoff.
Becker returned to the SEC at the urging of Schapiro for his second stint as GC in 2009, several months after the Madoff fraud was exposed.
The letter is the second from House Republicans. On Feb. 24, they wrote Schapiro to ask whether Becker knew about his parents’ investments with Madoff. Reuters reported Monday that Becker responded that he told Schapiro about the inheritance when he re-joined the agency. Becker said he sought advice from SEC ethics counsel William Lenox in 2009. “At the time, the SEC was focused on bringing enforcement actions against Mr. Madoff and others, and in the view of the ethics counsel, those matters did not have a direct and predictable effect on my financial interests,” wrote Becker.
SEC spokesman John Nester said the SEC’s ethics counsel “respectfully declined” to be interviewed for this story. Nester said the ethics issue was governed by financial conflict rules found at 35 CFR Part 2635: Standards of Ethical Conduct for Employees of the Executive Branch, Subpart D.
Becker left his post last Friday to return to the private sector, in a move apparently unrelated to the allegations. In a press release from the SEC, Chairman Schapiro said, “Although I knew this was a two-year commitment, I am sorry this day has approached so fast.”
When asked about the suit in an interview Feb. 23, Becker told CorpCounsel.com: “I got the complaint last week. We’re gonna look at it, seek legal advice on it. Afterward, we’ll respond and do the right thing.”
But at least one expert in legal ethics and congressional matters doesn’t think Becker did the right thing when it came to the Madoff investigation. Stephen Saltzburg, a law professor at George Washington University, said that Becker should have distanced himself from the matter.
Ordinarily a public official wouldn’t be required to disclose the origin of his inheritance, said Saltzburg. But given the enormous scope of the Madoff debacle, Saltzburg said that anyone who had profited from investments with him “ought to have recused themselves from any investigation of Madoff or anyone involved with Madoff.”
“My belief is that when somebody has been touched by scandal, that’s a scandal that they ought not to be involved in investigating,” said Saltzburg. He said that for Becker to have recused himself would have been the prudent thing to do.
“He may have been legally … technically correct,” Saltzburg said, “but at this time the public wants more than technically correct.”
[EDITOR'S NOTE: Stay tuned for upcoming coverage of Becker's departure from the SEC in Corporate Counsel magazine. A Q&A with the GC will appear in our April issue.]
Shannon Green can be contacted at firstname.lastname@example.org.