Potential Conflicts of Interest at the SEC: The Becker Case

Hearing Date: September 22, 2011 12:00 am

Chairman McHenry Hearing Preview Statement

In May 2010, then-Ranking Member Issa released a report that explained how the SEC’s unworkable structure, lawyer-driven culture, and technological backwardness helped to cause its high-profile failures, such as the Madoff scandal. This joint committee hearing continues ongoing efforts of Congressional oversight.

The matter at hand today revolves around former NASDAQ chairman Bernard Madoff’s elaborate Ponzi scheme. Mr. Madoff admitted guilt nearly a decade after questions had been raised to regulators about the Madoff firm, which operated a Ponzi scheme with over $60 billion of fraud and thousands of clients. It was clear the SEC’s reputation had taken a blow.

In 2009, Mary Schapiro was named Chairman of the SEC and stated her commitment to rebuild the SEC’s reputation. Soon after her arrival she welcomed back David Becker to the SEC as a general counsel.

Upon arriving at the SEC in early 2009, Mr. Becker informed Chairman Schapiro about his status as a net winner from the Madoff fraud case. Despite learning this, Chairman Schapiro never asked Mr. Becker to recuse himself from Madoff-related matters or to disclose his financial interest.

Since then, a series of missteps by high ranking officials at the SEC – ranging from Mr. Becker’s communication with the SEC ethics counsel to his personal participation in matters of which he had a personal financial interest – have put into question the reputation of the management and decision-making of the SEC. We also know, for example, that the five SEC Commissioners, advised by Becker, voted on an issue that affected Becker’s financial interest – but only Chairman Schapiro knew about that interest. Just yesterday, the SEC Inspector General referred the results of its investigation to the Public Integrity Section of the Criminal Division of the Department of Justice.

The Criminal Conflict of Interest Statute is clear. It states that one is prohibited by criminal statute from participating personally or substantially in any particular matter in which he has a personal interest – no matter if such participation or outcome benefits or harms his personal stake. This clearly defined statute is why former Commissioner Cox required all SEC’s officials to recuse themselves from Madoff-related matters if they had even donated to a charity that was connected to the firm. No exceptions allowed.

Not only was Mr. Becker’s professional involvement unfair to the victims of Mr. Madoff, but it was also unfair to American investors, issuers, and capital markets that depend on the perception that their regulators are absolutely impartial.

I look forward to hearing from the SEC about this matter, whether proper and thorough protocols was exercised, and what recommendations from the IG’s report does the Commission plan to implement to ensure this never happens again.

Witnesses and testimonies

Name Title Organization Panel Document
The Honorable Mary Schapiro Chairman Securities and Exchange Commission Panel 1 Document
Mr. H. David Kotz Inspector General Securities and Exchange Commission Document
Mr. David M. Becker Former General Counsel Securities and Exchange Commission Panel 2 Document