As discussed here back in February, a woman named Dorothy Becker was among those that had an account with Bernard Madoff's firm. Upon her death in 2004, Ms. Becker's sons were named executors of their mother's estate, and they liquidated the Madoff account in 2005, withdrawing $2,042,845. One of Ms. Becker's sons, David Becker, was the General Counsel of the SEC in 2000-2002 and again from February 2009 until February 2011.
In February 2011, the trustee overseeing the Madoff bankruptcy sued hundreds of Madoff investors, including David Becker and his brothers. As I noted at the time, the trustee was
trying to "clawback" any money that was withdrawn from the firm under the theory that the whole operation was a Ponzi scheme and nobody was entitled to withdraw money and benefit from the fake proceeds shown on their account statements. Because Ms. Becker is now deceased, the trustee's claim for the money withdrawn from her account is being filed against her three sons.
Today, however, the SEC Office of Inspector General released a report concerning whether the Madoff account that Becker and his brothers inherited created a conflict of interest for Becker because he was involved in discussions during his second stint at the SEC regarding the position the SEC would advocate as to the determination of a customer's "net equity" in the Madoff Liquidation. The IG report states that the method for determining the Madoff customer's net equity was (1) "critical to determining the amount the Trustee would pay to customers in the Madoff Liquidation," and (2) directly connected to the overall amount of funds the Trustee would seek to claw back and the calculation of amounts sought in individual clawback suits.
The IG found that at the time Becker participated in these net equity policy discussions, he understood there was a possibility the Trustee would bring a clawback suit against him for the fictitious Madoff profits. "Notwithstanding this knowledge," the IG found, Becker "worked on particular matters that could impact the likelihood, and even possibility, of a clawback suit against him, as well as the amount that could be recovered in such a clawback action."
Notably, Becker consulted with the SEC's Ethics Office regarding his interest in his mother's estate on two occasions, and was advised both times that there was no conflict. The IG report, however, expresses "concerns about the role and culture of the Ethics Office at the time it provided Becker with clearance to work on the Madoff Liquidation," including the fact that the Ethics Counsel with whom Becker consulted twice reported directly to Becker.
The IG report further states it will be referring the results of its investigation to the Public Integrity Section of the Criminal Division of the United States Department of Justice. The IG recommended that the SEC conduct a re-vote concerning its position on the net equity question "free from any possible bias or taint," and advise the bankruptcy court handling the Madoff matter of the results and the position that the Commission is adopting.
In a statement today, SEC Chair Mary Schapiro said that while she believes the decision the Commission made on the net equity "was appropriate under the law and in the best interest of investors," she will seek another vote of the Commission on the question as recommended by the IG. She added that she has known Becker "for many years to be a talented, highly skilled lawyer and a dedicated civil servant who served under three Chairmen."