Ex-SEC Counsel $140,000 Madoff Benefit

Chidem Kurdas

It would make great satire. David Becker shaped regulatory policy for years as the Securities and Exchange Commission’s general counsel. His “wisdom and careful judgment” was celebrated by SEC Chair Mary Schapiro. Now his conflict of interest as an investor with Bernard Madoff is to be reviewed by Congress and the Justice Department. 

All that “wisdom and careful judgment” did not prevent him from creating a bad mess—admittedly in a bureaucracy that’s prone to messes.  He got deeply involved in the issue of how to calculate Madoff investors’ legal claim or net equity. He pushed the Commission to a decision that benefitted him and his brothers. The exact amount of the benefit was $138,500, according the SEC Inspector General. Another rough estimate puts it at $140,000.

The claw-back demanded from Mr. Becker and his brothers by the Madoff estate trustee would be reduced by this amount if the calculation of investors’ equity factored in inflation over the years. Mr. Becker, in his role as SEC counsel, got the commissioners to agree to inflation-adjusted equity.

The trustee instead calculates investors’ equity as original investment without adjustment for inflation and wants to take back any redemption beyond that. Mr. Becker and his brothers closed their account and received their share of Madoff’s fake returns several years before the fraud emerged in December 2008, so they are sued for the claw-back.

While $140,000 is not a huge sum, nevertheless there is an obvious conflict of interest between Mr. Becker as an investor who faces a claw-back of the fake gains he’s pocketed from a Madoff account he inherited from his mother versus Mr. Becker as a top regulator who advised the SEC commissioners on how the fake gains are determined.

That should have been evident to him, to Ms. Schapiro and to the SEC ethics officer he consulted, William Lenox. But apparently they did not think it mattered.

There was certainly no lack of experience. Mr. Becker first joined the SEC in 1998 and was general counsel from January 2000 to May 2002. According to his SEC bio, he “helped shape most of the Commission’s major policy and regulatory initiatives in those years, and he counseled the Commission on virtually every matter that came before it.”

Then he went through the revolving door to private practice as securities lawyer. In 2009 he moved in the opposite direction, from Cleary Gottlieb Steen & Hamilton LLP back to the SEC as general counsel for a second time, as well as senior policy director.

As ethics officer, Mr. Lenox saw no reason for Mr. Becker to be kept out of the Madoff estate decisions. Within the organization, Mr. Lenox reported to Mr. Becker—-which itself looks like another clear conflict of interest. They gave each other glowing recommendations. Mr. Lenox described Mr. Becker as a “great man and a great lawyer”.

Mr. Becker, in turn,  wrote some months after getting reassuring advice regarding his Madoff role that “The performance of the ethics office has been superb …. The quality of the ethics advice is very high ..”

Evidently Mr. Lenox has now left the SEC, notwithstanding the “very high” quality of his ethics advice.

This happened in a bureaucracy that was chastened by its monumental failure to catch Madoff (despite repeated warnings) and supposedly cleaned up its act. A bureaucracy that is implementing the Dodd-Frank Act’s thousands of pages of new financial regulations.

In fact Mr. Becker was brought back as part of the cleaning up, to be the leading lawyer of the brand new improved SEC.  All this would be funny if it weren’t scary.


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