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The head of the U.S. Securities and Exchange Commission said she wished the SEC's former top lawyer had removed himself from the agency's work on the epic Bernard Madoff fraud.
In an affair that is undermining the agency's pleas for more funding, SEC Chairman Mary Schapiro told a congressional panel that, in hindsight, formerRegulatory Agency | SEC General Counsel David Becker's Madoff ties should have been handled differently.
"I wish that Mr. Becker had recused himself," Schapiro said on Thursday at the third of a trio of hearings on Capitol Hill where she and other officials were grilled over Becker, the Madoff episode generally, and theRegulatory Agency | SEC's budget.
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At a time when the SEC is laboring to meet tight deadlines for implementation of dozens of new financial regulations under 2010's Dodd-Frank Wall Street reforms, the Becker episode is proving to be a major distraction.
The matter may be "one of the greatest challenges to the SEC's credibility since Bernard Madoff managed to dupe so many Americans," House Oversight Committee Chairman Darrell Issa, a Republican, said at the final hearing of the day.
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Becker left the SEC at the end of February, as previously planned, but has told lawmakers he was advised by the agency's ethics counsel that he could participate in Madoff matters even though he disclosed inheriting Madoff funds from his mother.
Schapiro said she was informed that Becker's mother had a Madoff account, but could not recall whether Becker specifically told her that he inherited money from that account. Madoff trustee Irving Picard is now suing Becker and his brothers to claw back $1.5 million in phony profits from their mother's estate.
Regardless, Schapiro says it was her responsibility to see "around the next corner" on such matters, especially when the public's trust in the SEC could be on the line.
"The sad part about it is one of these little incidents can almost destroy that trust," Schapiro told the afternoon hearing.
Republicans opposed to giving the SEC more money, and opposed to the new rules it is implementing in response to the 2007-2009 financial crisis, seized on the Becker case.
Some Democrats joined in demanding answers from Schapiro as to why Becker was allowed to advise on the Madoff case, including advice on how to compensate the swindler's victims.
The SEC's top watchdog has an investigation underway.
The SEC voted in 2009 on a particular method to compensate Madoff's victims, with some commissioners and staff unaware that Becker had received money from Madoff funds, sources told Reuters on Wednesday.
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