The SEC, Tangled Up in Madoff

How about that Irving Picard?

The lawyer trying to recover cash for Bernie Madoff’s victims had the nerve to sue Jamie Dimon’s JPMorgan Chase for $6.4 billion, saying the bank was at the “very center” of Madoff’s fraud and knew—or should have known—what was going on (it’s worth revisiting a New York Times/Il Sole 24 Ore report from early 2009 on JPM yanking its money from Madoff just months before the Ponzi unraveled).

Now Picard is going after the SEC’s top lawyer, David M. Becker, to recover $1.5 million in “ill-gotten” gains his late mother made with Madoff. That’s according to a nice New York Daily News scoop this morning.

Becker denies knowing anything about his mother’s Madoff money, but it’s another black eye for the SEC, which did its best to look the other way despite repeated warnings that Madoff was operating Ponzi scheme. Those warnings came from the whistleblower Harry Markopolos, and it’s well worth revisiting this New York Times Q&A with him from last year:

(Deborah Solomon) You met last year with Mary Schapiro, the current head of the S.E.C. How did that go?

(Markopolos:) I would say she was coldly polite. Her general counsel, David Becker, did most of the talking. He and I did not get along at all. He was getting ready to come across the coffee table and strangle me.

Now let’s emphasize that Becker wasn’t at the SEC from 2002 until 2009. But he was there—as the top lawyer—2000 to 2002, when Markopolos first warned the agency that Madoff was running a Ponzi. That’s also when reporter Michael Ocrant wrote a piece headlined “Madoff Tops Charts, Skeptics Ask How” and Erin E. Arvedlund of Barron’s wrote a story that raised serious questions about Madoff’s operation and how it got its returns. There’s no indication that Becker squelched an investigation or even knew about the Madoff warnings. But it’s worth a look.

The Daily News gets a bit aggressive with this quote, but it gets the point across:

Bradley Simon, a former federal prosecutor who has watched the Madoff case unfold, said situations such as Becker’s look bad for the SEC.

“If families of high-ranking SEC officials were heavily invested in Madoff it may help explain why the SEC was less than vigilant in scrutinizing his activities,” Simon said. “We know they were asleep at the switch. This may help explain why.”

A further note on the tangled-web angle: Another general counsel, JPMorgan’s Stephen Cutler, was quoted last week in The Wall Street Journal defending his company against Picard’s allegations. As Audit Trustee Dean Starkman pointed out last week, Cutler from 2001 to 2005 was the enforcement chief of the SEC.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,