Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, September 20, 2011

SEC Inspector General Releases Report on Becker, Refers Matter to DOJ

The SEC website has a link to the SEC Inspector General's report investigating the circumstances surrounding former SEC General Counsel David Becker's involvement in the agency's consideration of Madoff issues (specifically, compensation to Madoff victims) despite having inherited from his mother an interest in a Madoff account.  The IG has referred the matter to the DOJ to investigate whether Becker should face criminal charges and recommends that the SEC revisit some Madoff-related decisions.  In the report, the IG finds that

Becker participated personally and substantially in particular matters in which he had a personal financial interest by virtue of his inheritance of the proceeds of his mother's estate's Madoff account and that the matters on which he advised could have directly impacted his financial position. We found that Becker played a significant and leading role in the determination of what recommendation the staff would make to the Commission regarding the position the SEC would advocate as to the determination ofa customer's net equity in the Madoff Liquidation.... Testimony obtained from SIPC officials and numerous SEC witnesses, as well as documentary evidence reviewed, demonstrated that there was a direct connection between the method used to determine customer net equity and clawback actions by the Trustee, including the overall amount of funds the Trustee would seek to clawback and the calculation of amounts sought in individual clawback suits. In addition to Becker's work on the net equity issue, we also found that Becker, in his role as SEC General Counsel and Senior Policy Director, provided comments on a proposed amendment to SIPA that would have severely curtailed the Trustee's power to bring clawback suits against individuals like him in the Madoff Liquidation.

Chair Schapiro has posted a response on the website.  She stated:

“Last March, after learning about the Trustee’s suit against the Becker estate, I asked for the Inspector General to look into the matter.

I take his report, which was published today, very seriously.

It would be inappropriate for me to comment on the Inspector General’s referral to the Department of Justice.

I do want to state that I’ve known David for many years to be a talented, highly skilled lawyer and a dedicated civil servant who served under three Chairmen.

As the Inspector General recommends, we will seek another vote of the Commission on the question of the SEC’s position on the valuation of Madoff victim accounts.

I believe that the decision the Commission made on that issue was appropriate under the law and in the best interest of investors.

Moving forward, we plan to implement the other recommendations contained in the report as well.”

On Sept. 22, the House Financial Services Committee and the Committee on Oversight and Government Reform will hold a hearing on the Becker matter, where Schapiro, SEC IG Kotz and Becker are expected to testify.

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