The Securities and Exchange Commission’s Office of Inspector General has recommended that the Department of Justice take over the investigation of a possible conflict of interest of a former general counsel at the agency who inherited an account with Bernard Madoff’s investment advisory firm.

The Inspector General’s report looked into the role played by David Becker, a former general counsel and senior policy director at the SEC. Becker and his two brothers inherited an interest in a Madoff account after the death of their mother in 2004. The account was liquidated for approximately $2 million.

The report, by Inspector General David Kotz, found that he played a “significant and leading role” in determining what recommendation the SEC staff would make to the Commission regarding the position that the SEC would advocate as to the determination of a customer’s net equity in the Madoff liquidation, and that he “participated personally and substantially in particular matters in which he had a personal financial interest by virtue of his inheritance of the proceeds of his mother’s estate’s Madoff account and that the matters on which he advised could have directly impacted his financial position.”

He was later named as one of the defendants in a clawback suit brought by Irving Picard, the trustee overseeing the Madoff liquidation. The suit contended that approximately $1.5 million in the account constituted fictitious profits and should be clawed back into the customer property fund for distribution to other Madoff customers. Becker’s work also had a bearing on whether clawbacks would be allowed for former Madoff clients. One position advocated by Becker could have reduced the legal claims against him and his brothers by $138,500.

Becker did consult on two separate occasions with the SEC’s Ethics Office regarding his interest in his mother’s estate and was advised that there was no conflict. However, the ethics counsel who told him he did not need to be recused from work on the Madoff case reported directly to him. The Inspector General referred the results of its investigation to the Justice Department’s Public Integrity Section to investigate whether he violated a criminal conflict of interest provision.

SEC chair Mary Schapiro said the Commission would re-evaluate its position on the Madoff accounts. "I do want to state that I’ve known David for many years to be a talented, highly skilled lawyer and a dedicated civil servant who served under three Chairmen," she said in a statement Tuesday. "As the Inspector General recommends, we will seek another vote of the Commission on the question of the SEC’s position on the valuation of Madoff victim accounts. I believe that the decision the Commission made on that issue was appropriate under the law and in the best interest of investors. Moving forward, we plan to implement the other recommendations contained in the report as well.”

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