WASHINGTON (AP) - The inspector general of the Securities and Exchange Commission has asked the Justice Department to investigate whether a former top SEC official who benefited financially from Bernard Madoff's Ponzi scheme violated conflict-of-interest laws in helping establish SEC policy.
The SEC's former general counsel, David Becker, played a key role in crafting agency policy on how Madoff's victims should be compensated - after he inherited a Madoff account from his mother.
SEC Inspector General David Kotz said in a report issued Tuesday that Becker participated "personally and substantially" in issues in which he had a financial interest.
Kotz said that on the advice of the federal Office of Government Ethics, he has referred his findings to the Justice Department's Public Integrity Section for possible criminal prosecution.
Kotz also recommended that the five-member SEC vote again on how claims should be paid to Madoff customers "in a process free from any possible bias or taint." SEC Chairman Mary Schapiro said Tuesday she will have the panel vote again.
"I believe that the decision the commission made on that issue was appropriate under the law and in the best interest of investors," Schapiro said in a statement.
Madoff pleaded guilty in 2009 to conducting a multibillion-dollar investment fraud. He is serving a 150-year sentence in federal prison. The SEC's reputation was battered by its failure to detect the Madoff fraud over the nearly two decades the scheme was under way.
Kotz's report said Becker made the case for valuing claims from Madoff customers in a way that could have curbed the power of the federal court-appointed trustee to sue beneficiaries of the scheme - like Becker - to recover profits that were deemed fictitious.
The trustee sued Becker and his brothers in February, claiming roughly $1.5 million of the $2 million in their mother's account was phony profit that should be returned to the fund for compensating defrauded Madoff customers.
Schapiro, who asked Kotz in March to investigate the matter, said she takes his report "very seriously."
"I do want to state that I've known David (Becker) for many years to be a talented, highly skilled lawyer and a dedicated civil servant who served under three (SEC) chairmen," she said.
Schapiro told a congressional hearing in March that she erred in allowing Becker to take part in setting the policy, after he told her that he had inherited a Madoff account from his mother.
Republican lawmakers say the affair has further eroded the public's trust in the SEC.
Kotz's report notes that at least seven senior SEC officials - including Schapiro and two agency ethics officials - were informed of Becker's mother's account with Madoff. None of them "recognized a conflict or took any action to suggest that Becker consider" abstaining from the issue, the report says.
Becker sought advice from the agency's ethics office and was told he had no conflict of interest, it says. However, the report also notes that Kotz's office found problems with the "role and culture" of the ethics office at the time.
William Baker, an attorney representing Becker, said Tuesday that Kotz's report confirms the "critical facts" of Becker informing SEC officials of the account and the ethics officer's advice that he had no financial conflict.
However, the report also "contains a number of critical factual and legal errors that lead to erroneous conclusions," Baker said in a statement. "Unfortunately, we were not provided with an opportunity to review the report and correct the record prior to its release. Mr. Becker looks forward to testifying before Congress."
Two House subcommittees are holding a joint hearing on the matter Thursday. Schapiro, Kotz and Becker are scheduled to testify.