A recent report from the SEC Inspector General has given the SEC another “black eye.” Apparently, senior management at the SEC allowed its general counsel. David Becker, to participate and vote in a decision on whether Madoff victims would be entitled to recover fraudulent “profits” in their account or whether recoveries would be limited to the amounts invested. The problem – Mr. Becker had a personal interest in the decision. He along with two brothers inherited a Madoff account held by his mother, who died in 2004, and Becker and his brother closed the account shortly thereafter with a $1.5 million “profit” (the amount invested by his mother was $500,000).
Keep in mind that allowing earlier investors who got out early to keep their profits penalizes later investors who were not so lucky. The Madoff bankruptcy trustee, who is charged with recovering as much as possible for all victims, is suing Becker and others to recover Madoff “profits” and distribute them evenly to all victims.
William Lenox was the SEC ethics officer who approved Becker’s participation in the Madoff victims compensation decision. Becker was Lenox’s boss. The same year that Lenox approved Becker to work on Madoff matters, Becker wrote in Lenox’s performance evaluation: “The performance of the ethics office has been superb. The quality of the ethics advice is very high.”
Becker reportedly disclosed his conflict of interest regarding Madoff victim compensation to Chairwoman Shapiro, but she did not disclose it to any of the other commissioners. In a statement, Shapiro said she had known Becker for many years and praised him.
The SEC’s Inspector General, H. David Kotz, investigated, issued a critical report, and referred the matter to the Department of Justice. Among Kotz’s findings are: (1) that Becker argued for a reversal of a prior SEC decision limiting Madoff victims’ compensation to amounts invested, and pushed for victims to be compensated in part based on the final balance in their account, (2) that the Becker family stood to benefit from this approach by $138,500, (3) that Becker thus “participated personally and substantially in particular matter in which he had a personal financial interest,” and (4) that Shapiro agreed with a decision to keep Becker from testifying before Congress, where he presumably would have disclosed his conflict of interest.
None of the commissioners except Shapiro knew of Becker’s interest in the Madoff account. One commissioner reportedly told Kotz that it was “incredibly surprising and incredibly disappointing” that the other commissioners had not been apprised of Becker’s conflict of interest.
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