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US regulator's Madoff 'conflicts' probed

Friday 4 March 2011 - by Will Henley

Senior Republicans have raised serious questions about "multiple conflicts of interest" at the Securities and Exchange Commission over its handling of the Bernie Madoff ponzi fraud case.

In a letter to the regulator sent yesterday, Oversight and Government Reform Committee chairman Darrell Issa and Committee on the Judiciary ranking member Senator Chuck Grassley lambast the regulator's management and organisational independence.

The attack follows the naming of the commission's outgoing general counsel, David Becker, who advised the SEC in the aftermath of the Madoff scandal, in a lawsuit by victims seeking clawbacks from the long-running investment fraud.

Irving Picard, a trustee charged with seizing Madoff assets, is suing Becker and his brothers for more than $1.5m after it emerged that they benefited from inheritance from their mother, who had invested in a Madoff account.

Picard claims that these proceeds were "non-existent profits supposedly earned in the account, but in reality... [were] other people's money."


Despite his financial connection to Madoff, Becker recommended the SEC value the net equity of Madoff accounts to the bankruptcy court supervising Picard - a position that "affected his personal financial interest", according to Issa and Grassley.

The general counsel drafted, edited and filed briefs representing the SEC's legal position "in the very same legal case in which he was later named a defendant," they note.

In an email released by the SEC and published by Issa's committee, dated 4 May 2009, William Lenox of the SEC's ethics committee concludes that Becker "do[es] not have a financial conflict of interest and... may participate".

Issa and Grassley take exception with this decision and hit out at SEC chairman Mary Schapiro, who they claim knew about the conflict of interest from February 2009 and still allowed Becker's involvement.

They write: "Becker's participation in any aspect of the commission's involvement with the aftermath of Madoff's fraud suggests multiple potential conflicts of interest. It has also subjected the commission to further questions about its management and independence."

In the past, Schapiro has herself been criticised for ties to Madoff. She appointed Mark Madoff, one of Bernie Madoff's sons, to the Financial Industry Regulatory Authority's National Adjudicatory Council when she was its chief in 2001.

Bernie Madoff was sentenced to 150 years in prison in June 2009, leaving his firm with liabilities of approximately $50bn (€35.7bn). Mark Madoff hanged himself in December last year.


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