Just when the Securities and Exchange Commission might hope to shed some of the shame of missing the biggest investment scam in U.S. history comes news that its own top lawyer profited from the scheme.
He didn’t do it knowingly because, embarrassingly enough, the SEC didn’t know it was a scam. Still, David M. Becker, the agency’s former chief counsel, wound up profiting from Bernard Madoff’s investment pyramid. That’s according to Becker’s own explanation.
And so he is among the hundreds of people, funds and firms that bankruptcy trustee Irving Picard is suing to recover money for those who lost principal in the Ponzi scheme.
Becker became a beneficiary because his mother invested $500,000 with Madoff that became $2 million by the time she died in 2004, according to the suit. Her sons cashed it out in early 2005, almost four years before the pyramid collapsed.
However unwittingly they profited from the crime, there’s more than a little irony in the suit Picard filed against the three Becker brothers to recover the $1.5 million the family made off of other investors.
For one thing, Picard is claiming in other, more spectacular suits that sophisticated investors and banks, including JPMorgan Chase, knew or should have known they were pumping money into and reaping profits back from a massive scam.
But of all those who should have known that there was something deeply wrong with Madoff’s operations, the SEC tops the list. It’s the agency’s core job to know that sort of thing, yet it blew off the very idea.
Beginning in 1992, the SEC repeatedly failed to take seriously “numerous credible and detailed complaints” and “never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme,” the agency’s inspector general concluded in a 2009 report.
The report blamed poor staffing and simple ineptitude.
Precisely because the SEC investigations never uncovered the fraud, Becker was spared any knowledge of the allegations. In a letter to inquiring House Republicans last week, he defended himself by citing the same inspector general report that slammed his agency.
“The report finds that the complaints were not reviewed and distributed as they should have been,” Becker wrote, which is to say they never reached his office.
Picard’s suit against the Beckers doesn’t claim that any of them “knew or should have known” Madoff was scamming his clients. They’re being sued because they took out more money than their mother invested with Madoff. The presumed profit that they and other net winners received was actually principal that other, newer investors were putting in.
If the SEC had done its job, there wouldn’t have been so many newer investors -- perhaps not even Dorothy Becker.