Bloomberg News

Justice Won’t Probe Ex-SEC Official Becker, Lawyer Says

November 08, 2011

(Updates with background on Kotz criminal referrals starting in sixth paragraph.)

Nov. 3 (Bloomberg) -- Federal prosecutors have told former U.S. Securities and Exchange Commission General Counsel David Becker that they won’t open an investigation into whether he violated ethics laws, his attorney said.

The SEC’s inspector general, H. David Kotz, in September called for the Justice Department to review whether Becker should be criminally charged for having a financial interest in a policy he worked on relating to Bernard Madoff’s Ponzi scheme. Becker inherited profits from the fraud through an account held by his late mother.

“We are gratified at the decision, and it’s consistent with our view that Mr. Becker did exactly what he was supposed to do under the circumstances,” Becker’s attorney, William Baker III, said in an interview today.

Becker, who left the SEC in February to return to private legal practice, has said he had no financial interest in the agency’s Madoff policy. He had received clearance from the regulator’s ethics counsel to work on the matter in 2009. He had also informed SEC Chairman Mary Schapiro about the account.

Kotz referred his report to the Justice Department’s public integrity section, which reviewed it and concluded a formal probe wasn’t warranted. A department spokeswoman, Laura Sweeney, declined to comment; Kotz didn’t respond to a request for comment.

Criminal Referrals

Kotz has come under fire inside and outside the SEC for his propensity for sending his investigations to criminal authorities and then having them refuse to bring cases.

In reports to Congress, Kotz has said his office referred 28 cases to the Justice Department from October 2007 to March of this year, leading to two prosecutions, one agreement not to bring charges and no convictions so far. He said in a statement last week that only about 10 were formal referrals and one resulted in a conviction.

Other inspectors general, with similar duties, send fewer referrals, according to their congressional reports. For example, the Federal Trade Commission’s watchdog during the same time period referred one matter to a U.S. attorney and it resulted in a guilty plea. The Commodity Futures Trading Commission inspector didn’t refer any cases to the Justice Department.

$1.5 Million in Profits

Kotz opened his probe of Becker in March after the former counsel and his brothers were sued by the court-appointed trustee in the Madoff bankruptcy case to recover $1.5 million in profits from their mother’s liquidated account.

The inspector general’s 119-page report, released Sept. 20, said Becker advocated that Madoff investors be compensated for losses from an SEC-overseen insurance fund using a formula that adjusted for inflation. The SEC adopted the method, which Kotz said would have reduced the amount that Becker could have been sued for by about $140,000. The formula hasn’t been adopted in the Madoff bankruptcy case.

Testifying before a House panel two days after the report was issued, Becker took issue with Kotz’s decision to send the case to the Justice Department, saying the inspector general uses criminal referrals to “get lots of publicity” for his investigations.

“I’ve seen Inspector Kotz do this before,” Becker said, adding that a number of the watchdog’s previous referrals “were laughable.”

Becker, 64, worked as a clerk for former U.S. Supreme Court Justice Stanley Reed after graduating from Columbia University School of Law, where he was editor-in-chief of the law review. He was the SEC’s general counsel from 1999 to 2002 before rejoining the agency in 2009 to be Schapiro’s top lawyer. Becker is now a partner in the Washington office of the Cleary Gottlieb Steen & Hamilton law firm.

--Editors: Lawrence Roberts, Maura Reynolds

To contact the reporters on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net; Joshua Gallu in Washington at jgallu@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net


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