The head of the Securities and Exchange Commission said Thursday she erred in allowing a former agency official who benefited financially from Bernard Madoff's Ponzi scheme to play a key role crafting policy on how Madoffs' victims should be compensated.
SEC Chairman Mary Schapiro told lawmakers that she should have gone beyond the agency's ethics requirements in her handling of David Becker, the agency's former general counsel. She said she now wishes Becker had stayed away from the policy. Earlier this week, she told lawmakers in a letter that she didn't see a conflict in Becker having inherited a Madoff account from his mother.
In hindsight, it would have been "appropriate" for Becker to be excluded from any SEC work on the Madoff policy, Schapiro said in testimony to two panels of the House Oversight and Government Reform Committee.
Republican lawmakers said the incident erodes the public's trust in an agency already battered from its failure to detect Madoff's scheme. The Becker affair "could be the greatest challenge to the SEC" since the Madoff scandal, said Rep. Darrell Issa, R-Calif., chairman of the full oversight committee. "We're not willing to accept that this can ever happen again."
The SEC inspector general is investigating the agency's handling of Becker, who is being sued because a federal court-appointed trustee says he inherited money his mother made from Madoff's scheme. Madoff pleaded guilty in 2009 after conducting a multibillion-dollar investment fraud scheme.
Even some Democrats seemed to question Schapiro's judgment on the matter.
Rep. Elijah Cummings, a Democrat from Maryland, said he was troubled "to a degree" by the appearance of a potential conflict of interest for Becker.
"The sad part about it is that one of these little incidents can destroy" the trust in the SEC that Schapiro has been trying to rebuild, he told her.
Schapiro agreed it could set the agency back.
"From where I sit now ... I wish that Mr. Becker had recused himself, absolutely," Schapiro said
Schapiro is under pressure at a time when the SEC is seeking more money from Congress to implement new financial regulatory rules. Many GOP lawmakers voted against the sweeping financial overhaul law and now say the SEC has been rushing out the rules.
Schapiro said the agency needs the $1.4 billion for the budget year beginning Oct. 1 to hire new staff and to invest in new technology to police sprawling markets.
Schapiro said the agency is making a "top-to-bottom" review of its conflict-of-interest and other ethics policies.
"We will learn from this experience and we will take all actions necessary to earn the trust the public places in us," she said.
Becker, who was appointed by Schapiro in February 2009, left the SEC last month. His tie to Madoff became public late last month, when the court-appointed trustee sued Becker and his brothers, saying they earned more than $1.5 million in profits from their deceased mother's investments with Madoff.
Schapiro says she left it to Becker to get a judgment from the agency's ethics officer on whether he had a potential conflict of interest.
Becker did that. The ethics officer told him that "a reasonable person with knowledge of all of these facts would not question (his) impartiality."