SEC Inspector General Suspects Former Top Lawyer In Madoff Case

Sep 21 2011 | 2:37am ET

Questions about a possible conflict of interest on the part of the Securities and Exchange Commission’s former top lawyer have been referred to the U.S. Justice Department.

SEC Inspector General H. David Kotz recommended that the Justice Dept. look into David Becker’s role in the Bernard Madoff case. Becker, the agency’s former general counsel, and his brothers inherited about $2 million from their mother’s investment with Madoff; Irving Picard, the court-appointed receiver in that case, sued the Beckers late last year in an effort to recoup $1.5 million.

Becker’s decisions as general counsel “could have directly impacted his financial position,” Kotz wrote in his report, which was also sent to Congress. A House of Representatives committee is set to hold a hearing tomorrow featuring Becker, Kotz and SEC Chairman Mary Schapiro.

According to Kotz, Becker may have broken the law several times with regard to the Madoff case. The inspector general said the former general counsel, who left the SEC earlier this year, pushed for Madoff losses to be calculated using a formula that adjusted for inflation; under that system, the Beckers would be on the hook for $140,000 less. Kotz also faulted Becker for offering an opinion on proposed legislation to limit the kind of clawback lawsuit that he himself now faces.

Becker’s lawyer, William Baker, said that Kotz’s report “contains a number of critical factual and legal errors that lead to erroneous conclusions.”

Kotz also took aim at the SEC itself, noting that, while Becker informed Schapiro about his Madoff inheritance, Schapiro never told the agency’s other commissioners. What’s more, neither Schapiro nor William Lenox, then the SEC’s chief ethics lawyer, urged Becker to recuse himself from the Madoff case; in fact, Lenox approved his working on it.

Kotz wrote that Lenox based his decision on an “incorrect understanding” of the SEC’s role in the Madoff case. Worse, he never sought “to better understand the extent and nature of Becker’s involvement.”

The inspector general said the case raised questions about the SEC’s ethics office.

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