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The U.S. Securities and Exchange Commission voted on a method to compensate victims of swindler Bernard Madoff with some commissioners and staff unaware that the SEC's then general counsel had personal ties to the fraud.
Details of the 2009 deliberations emerged from sources and documents on the eve of congressional hearings on Thursday with SEC Chairman Mary Schapiro, who has said she knew former General Counsel David Becker's mother had invested with Madoff.
Becker's Madoff link, his clearance to work on Madoff matters by the agency's ethics council, and Schapiro's knowledge of the tie, is raising new questions about the agency's competence.
Schapiro told House Republicans in a letter this week that she knew of Becker's ties to Madoff money when he was first hired in 2009, but did not recall informing anyone else. She added that she "relied on Mr. Becker to present any ethics-related issues."
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Sources familiar with the matter are disturbed and shocked that Becker's potential conflict of interest was not more widely disclosed at theRegulatory Agency | SEC, an agency responsible for policing governance practices at corporate boards.
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The scrutiny comes as theRegulatory Agency | SEC is working to repair its reputation for failing to catch Madoff's decades-long, multibillion-dollar, self-confessed investment fraud, considered the biggest in history.
"If this was HP or IBM or some company like that, there is clear law that says they have a fiduciary obligation to share that information. It's not hard to move from that analogy to the commissioners," said James Cox, a professor at Duke University School of Law.
He added that if Schapiro knew of Becker's potential conflict, she "had a duty to share it with everybody else. There's no doubt about it."
An SEC spokesman declined to comment. Becker could not be reached.
INVESTIGATIONS LAUNCHED
House and Senate Republicans as well as the SEC's inspector general have launched investigations into whether any criminal or civil ethics laws were broken.
Madoff trustee Irving Picard has sued Becker and his two brothers for $1.5 million in alleged phony profits their mother's estate received.
The SEC's ethics counsel allowed Becker to work on Bernard Madoff matters, despite him and his brothers inheriting about $2 million in 2004 from their late mother's investments. Schapiro has asked the ethics counsel to review its procedures.
Stephen Crimmins, a partner at K&L Gates LLP and former senior SEC enforcement officer, plans to tell lawmakers in testimony that Becker was a "careful person" and disclosed the information about his mother's account.
