SEC chief says she regrets lawyer's role in Madoff review

The head of the Securities and Exchange Commission said Thursday she should have prevented the agency's former general counsel from having any role with issues related to the Bernard Madoff Ponzi scheme because his late mother once had an account with Madoff.

SEC Chairman Mary Schapiro made the admission at a House subcommittee hearing where she fielded pointed questions about David Becker, the agency's top lawyer until last month.

Becker's work in crafting the SEC's legal stance regarding efforts to repay Madoff victims has compounded the SEC's embarrassment over its failure to stop the scam because Becker and two brothers were beneficiaries of the account as part of their mother's estate.

"It did not strike me that his mother's account, closed years ago, would present a financial conflict of interest," said Schapiro, who testified that Becker told her about the account in 2009 and subsequently got approval from the SEC's ethics counsel to work on legal questions involving Madoff.

While defending that determination, Schapiro said she would handle the matter differently now, knowing the sensitivity of the multi-billion dollar Madoff scam, which victimized thousands of investors, including many who lost their life savings.

"On matters like these, I have to be looking around the next corner, looking beyond the horizon, and thinking above and beyond what may be appropriate advice from ethics counsel to make sure nothing occurs that would raise questions," said Schapiro.

She also insisted she could not recall whether Becker told her that he and his brothers received an inheritance from his mother's account.

Irving Picard, the court-appointed trustee seeking Madoff assets to repay victimized investors, is now suing to recover $1.5 million from Becker and his relatives. That amount represents false profits Becker's mother received from the scheme run by Madoff, who is serving a 150-year federal prison term after confessing his guilt in December 2008.

Becker was questioned by staffers for the House Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs shortly before he left the SEC. But he declined an invitation to testify at the panel's Thursday hearing, and was not subpoenaed to attend.

The subcommittee is investigating Becker's role, as is SEC Inspector General H. David Kotz. Separately, the SEC's current ethics counsel is conducting what Schapiro described as a comprehensive review of the agency's ethics regulations and safeguards.

Schapiro's testimony clearly left some members of the House panel less than satisfied. Questioning by Rep. Patrick McHenry, R-N.C., chairman of the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs, prompted her to acknowledge she didn't ask Becker to recuse himself from the Madoff case.

Schapiro also told McHenry she didn't advise Becker to research the account and determine whether it might be the target of a so-called clawback lawsuit by Picard.

"You say you wish you knew then what you know now," said McHenry. "Had you asked any of these questions then, you would have known (the problems) then."

"Mr. Becker's conduct, in retrospect was not a good idea," said Rep. Darrell Issa, R-Calif., who chairs the House Committee on Oversight and Government Reform. He questioned how Congress could be sure the SEC would prevent a similar mistake in the future.