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SEC General Counsel Responds to House Financial Services Chair Spencer Bachus? Inquiries on Madoff Fraud

By Jim Hamilton

At the request of SEC Chair Mary Schapiro, SEC General Counsel David Becker responded to a letter from House Financial Services Chair Spencer Bachus (R-AL) asking for a response on a series of questions regarding SEC General Counsel David Becker, who is a defendant in a clawback lawsuit initiated by Irving Picard, the trustee in the Bernard L. Madoff Investment Securities liquidation. The letter was also signed by Committee Vice Chair Jeb Hensarling (R-TX), Oversight Subcommittee Chair Randy Neugebauer (R-TX), and Capital Markets Subcommittee Chair Scott Garrett (R-NJ). The SEC announced on Feb 1 that David Becker would leave the Commission at the end of February to return to the private sector. Mr. Becker has been the agency?s chief legal officer and a senior advisor to Chairman Schapiro since February 2009.

In his response to the Bachus inquiry, Mr. Becker said that he had no recollection of being aware of the complaints or analyses of Harry Markopolos regarding Bernard Madoff during his first term at the SEC, a recollection he said was confirmed by an August 31, 2009 report of the SEC?s Inspector General. The report discusses how SEC staff handled each complaint that Mr. Markopolos submitted but does not find that Mr. Becker, or anyone in the General Counsel?s Office, received any of the complaints or knew anything about them. To the contrary, said, Mr. Becker, the report finds that the complaints were not reviewed and distributed as they should have been.

He also said that he did not recall preparing any legal memo or providing counsel to any SEC employees about any matters involving fraud or violations of the securities laws at Bernard L. Madoff Investment Securities during his first term at the SEC. He does recall working on some issues relating to payment for order flow and that Bernard L. Madoff Investment Securities was one of the firms that paid retail brokers for order flow. Thus, Mr. Becker may have provided some advice that related to Bernard L. Madoff Investment Securities, but the order flow issue was not related to the Ponzi scheme.

In his letter, Mr. Becker also said that either shortly before or after he returned to the SEC in 2009 he told Chair Schapiro and then SEC Ethics Counsel William Lenox that his mother?s estate, of which he was a beneficiary, had included a Madoff account that had been liquidated years before Mr. Madoff confessed to operating a Ponzi scheme. When he raised the account as a circumstance that could require ethics advice, said Mr. Becker, the Ethics Counsel found that he was not required to recuse himself from all Madoff-related matters. In the view of counsel, the SEC focus on enforcement actions against Mr. Madoff did not have a direct and predictable effect on Mr. Becker?s financial interests.

Mr. Backer further consulted with the Ethics Counsel when he received a letter from law firms asking that the SEC instruct the Madoff trustee to change his interpretation of SIPA as it related to the meaning of securities positions as to which customers may file a claim. The General Counsel recognized that the issue could affect his financial interests because it could affect the trustee?s decision to bring clawback actions against people like him. The Ethics Counsel advised Mr. Becker that he could participate in this matter because, in counsel?s view, the resolution of the meaning of a securities position would not have a predictable effect on the trustee?s decision to bring clawback actions. Counsel also concluded that a reasonable person with knowledge of all these facts would not question Mr. Becker?s impartiality.

Full post as published by Jim Hamilton's World of Securities Regulation on March 03, 2011 (boomark / email).