Mary Schapiro, the head of the Securities and Exchange Commission (SEC), did not think the financial connection between the agency's former general counsel and Bernard Madoff posed a matter of concern.
In a letter to lawmakers, the head of the SEC told lawmakers that she did not see a conflict of interest when David Becker explained to her that David's mother owned an account tied to Madoff, who was found guilty after generating billions of dollars through a Ponzi scheme in 2009.
During two Capitol Hill hearings this week, Schapiro is expected to reveal why she permitted her general counsel to contribute in shaping the SEC's policy on how victims of Madoff's scheme should be compensated.
David Becker is facing a lawsuit because a federal court-appointed trustee claimed Becker inherited monies which were generated from the illegal work of Madoff.
The questionable judgments Schapiro made are under evaluation amidst a challenging time for the SEC. The agency is currently seeking additional funding from Congress to establish new financial regulations. The head of the SEC will propose the agency's $1.4 billion need to hire more staff and invest in technology for the budget year that begins Oct. 1.
Many companies use employee stock ownership plans, or ESOPs, as an alternative to 401k plans or other types of employee investment program.
Not helping the SEC's cause is overwhelming criticism due to the agency's enduring failure to discover Madoff's scheme despite several hints of his activity.
Testifying before a Senate Banking Committee panel and a joint hearing of two House Oversight subcommittees, Schapiro will face questions by Republican lawmakers who not only see opposition the rules the SEC created, but also who voted against the financial overhaul law.
In addition, Republican lawmakers and the SEC inspector general are investigating Schapiro's actions with Becker.
Becker's connection to Madoff was unveiled to the public late last month after a court-appointed trustee sued Becker and his brothers, announcing that they profited over $1.5 million from their deceased mother's investments with Madoff. Becker left the SEC last month.
"Becker is caught in an interesting legal dispute. Although he his in possession of lots of money currently under question, his position his bordering innocence." said a securities lawyer who chose not to state his name.
In the letter to the lawmakers, Schapiro claimed that Becker brought the account to her attention shortly after he was appointed into the SEC. She added that she does not recall asking Becker for any additional information during his admission.
"The issue did not appear to me to present a financial conflict of interest," Schapiro stated in the letter to the lawmakers. "However, I relied on Mr. Becker to present any ethics-related issues" to the SEC's ethics officer, Schapiro added.
Becker did that. According to the questions posed to Schapiro, the ethics officer told him that "a reasonable person with knowledge of all of these facts would not question (his) impartiality."
John Nester, spokesperson for the SEC, said that Becker sought and followed the advice of the ethics officer.
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