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Lawmakers criticize SEC on Madoff case

Official profited with its blessing

Associated Press / September 23, 2011

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WASHINGTON - The head of the Securities and Exchange Commission is facing increased scrutiny from lawmakers as a former top SEC official says he was cleared to work on how victims of Bernard Madoff’s scheme should be compensated, even though he benefited financially from Madoff’s scheme.

The SEC’s former general counsel, David Becker, said in testimony to a House hearing yesterday that he was told by the agency’s ethics officials he had no conflict of interest in helping to craft the SEC policy.

SEC chairwoman Mary Schapiro was criticized at the hearing for allowing Becker to help set the policy. He told her that he inherited a Madoff account from his mother.

The SEC inspector general, who has investigated the matter, has asked the Justice Department to determine whether Becker violated conflict-of-interest laws.

Lawmakers say the affair has further eroded the public’s trust in the SEC. The commission’s reputation already was battered by its failure to detect Madoff’s multibillion-dollar fraud over the nearly two decades that it continued.

Madoff pleaded guilty in 2009 to investment fraud. He is serving a 150-year sentence in federal prison.

The inspector general, David Kotz, said in a report issued Tuesday that Becker participated “personally and substantially’’ in issues in which he had a financial interest. On the advice of the Office of Government Ethics, Kotz said, he referred his findings to the Justice Department’s Public Integrity Section for possible criminal prosecution.

Kotz’s report said Becker urged SEC commissioners to recommend that the bankruptcy judge in the case adopt a policy for valuing Madoff customer claims in a way that could have curbed the power of the court-appointed trustee to sue beneficiaries of the scheme, including Becker, to recover fictitious profits. The trustee sued Becker and his brothers in February, saying $1.5 million of the $2 million in their mother’s account was phony profit that should be returned to the fund for compensating defrauded customers.

A federal appeals court ruled last month in the trustee’s favor.