The New York Times has a great scoop this morning advancing the ball on the SEC’s entanglement with Bernie Madoff.
Remember a couple of weeks ago we found out that the SEC’s top lawyer, David M. Becker, had inherited money from his mother’s Madoff account. Madoff victims’ trustee Irving Picard is suing to get $1.5 million in Ponzi profits back from Becker and his brothers.
Now, Louise Story and Gretchen Morgenson report this (emphasis mine):
Perhaps the most significant Madoff matter involving Mr. Becker is a proposed reversal of the agency’s recommendation on how to compensate victims of the scheme, according to two people briefed on the S.E.C.’s discussions who asked not to be identified because they were not authorized to discuss the matter. While the agency had agreed on a deal that would return to investors only the money they had put into their Madoff accounts, Mr. Becker argued that the commission should change its stance to allow victims to keep some of the gains their investments had generated, since the investment would have grown somewhat over time even in a low-interest account. The Becker family would benefit from this approach.
So not only was the SEC on board with a plan on how to compensate victims, it was also what Picard and the Securities Investor Protection Corporation recommended. Then Becker switched that plan in a way that would benefit him. How did he and SEC Chief Mary Schapiro (and the ethics officer) think that this was okay? Why didn’t Becker recuse himself from all Madoff dealings, particularly ones that would affect him?
That’s an amazing ethical lapse.
The Times reports flatly that it was Becker who made the switch to the new plan, and here’s how it would benefit him and his family:
In the summer of 2009, Mr. Becker did reverse the commission’s earlier decision, however. His legal staff came up with a new proposal to reflect the length of time the money was invested, and the commissioners approved it at the end of the year. Some at the agency who worked with SIPC expressed dissent about the change, according to the people briefed on the deliberations.
Stephen P. Harbeck, the chief executive of SIPC, confirmed that his investor protection unit and the S.E.C. had initially agreed that victims should be able to keep only the money they had originally put into the Madoff firm. “Then they refined their opinion,” he said on Monday, referring to the S.E.C. He said that he did not know who had pushed for the change.
The S.E.C.’s definition, Mr. Harbeck said, would benefit anyone who withdrew more money from their Madoff accounts than they had put in. Mr. Becker’s family would be among them.
A couple of weeks ago I flagged the Times Magazine‘s year-old Q&A with Harry Markopolos, the Madoff whistleblower, and the paper’s new reporting makes that even more interesting. Here’s what Markopolos said to Deborah Solomon:
(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.
I really wish Story and Morgenson had got in touch with Markopolos to follow up with him on this or at least quoted this passage from the Q&A. It’s awfully interesting.
And the real news here should have gone higher than the eighth paragraph. But this is a very nice scoop.
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 rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.