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A joint U.S. House of Representatives committee hearing on Thursday heard from a repentant Securities and Exchange Commission chairman Mary Schapiro and a polite but defensive former general counsel David Becker about how Becker’s possible conflict of interest may have tainted two decisions at the SEC regarding the Bernie Madoff Ponzi scheme. “I’m eager for questions,” Becker told the group. “There have been many incomplete, inaccurate, and false things written about me.” Becker steadfastly held that he had done nothing wrong. “I did precisely what I was supposed to do,” he said. “I was informed by the SEC ethics office that I had no conflict of interest and there was no appearance of any conflict. . . I followed the advice of the ethics office completely.” In the end, the House panel seemed to shrug and let it go. U.S. Representative Gary Ackerman, a Democrat from Bayside, New York, even praised Becker, saying, “It seems to me you got blindsided slightly while trying todo the right thing. . . I think your dad would be proud of you.” The panel also seemed satisfied that Schapiro is instituting sufficient reforms to keep such a “screw-up” from happening again. But just to be sure, they asked the SEC’s inspector general, David Kotz, to check back in six months to assure that all his recommendations had been implemented. The panel expressed shock that Schapiro hadn’t asked Becker, when he was still the SEC’s GC, to recuse himself from the Madoff discussions in 2009 when she learned that his family had inherited and liquidated his mother’s Madoff investment five years earlier. In hindsight, Schapiro said she wishes she had. But she explained that, at the time, she didn’t see any connection to the old inheritance and what was happening currently in the Madoff bankruptcy case. Neither did Becker. The panel questioned Schapiro and Kotz first. Kotz’s office has referred Becker’s potential conflict to the U.S. Department of Justice for possible criminal prosecution. Becker scoffed at that. At one point he called Kotz’s effort a “dreadful report” riddled with incomplete statements. One panel member asked Becker if he would have recused himself if he knew then that there would be a criminal investigation someday. Becker replied, “The fact that Kotz made a big fuss and sent something to the Justice Department doesn’t move the needle for me. I’ve seen him do this before when I was with the SEC.” Becker said many of Kotz’s “big fuss” reports never went anywhere at Justice. “And some of them were just laughable,” he added. Becker clearly doesn’t believe this one will go anywhere either. “I take complete responsibility for my actions,” he said. “Frankly it’s easy, because I think I behaved appropriately.” Pressed on the criminality aspects of the situation, Becker stressed that he sought and followed the advice of counsel. “When it’s advice of counsel, absolutely it is a defense. The notion of knowledge is included in the law.” He added that for there to be a criminal conflict of interest, “an employee has to know that there is a ‘direct and predictable’ effect on his financial interest.” Becker insisted that he didn’t foresee any “direct and predictable” effects on an old inheritance until the trustee in the Madoff bankruptcy case sued to claw back any profits. Even Kotz pointed out that Becker never tried to hide his Madoff interest from Schapiro or at least six other people at the SEC, and that he never misled or gave anyone inaccurate information. In fact, Kotz seemed more critical of ex-ethics officer William Lenox, who he said misunderstood “the gravity of the situation” and gave “flawed ethics advice.” Asked if he had referred anyone else to the DOJ, Kotz said no. For him, the bottom line was that Becker should never have participated in the two Madoff-related decisions. The hearing was conducted before the financial services’ oversight and investigations subcommittee, and a subcommittee of the House committee on oversight and government reform. Becker’s replies to the panel made many of the same points contained in his poignant written testimony prepared for the hearing [PDF]. At one point Becker quoted directly from remarks he made to the commission staff when he resigned last February to return to his practice at Cleary Gottlieb Steen & Hamilton: …I’ve been asked how this time around is different than the previous time [when he worked at the SEC]. The answer is that it’s a hell of a lot harder. In some ways we’ve made it harder on ourselves; in others, we live with constraints not of our own making; and in other ways, we just live in times that are much meaner than they were 10 years ago. . . It’s riskier to work here than it used to be…It is a symptom of the times and a political culture that is, quite frankly, seriously nuts. To some extent, this enrages me. But mostly it makes me very sad. See also: “SEC Ex-GC David Becker to be Investigated by DOJ Over Madoff Money,” CorpCounsel, September 2011.

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