Former SEC general counsel David Becker is likely to face a criminal investigation for what he did and what he didn't do during the SEC's handling of the Madoff Ponzi scheme.  In a story that played out more than 2 years ago, the former SEC General Counsel may have violated conflict of interest rules by finalizing the Commission's proposal for compensating Madoff victims while having a financial stake in the outcome.

Federal conflict of interest law requires government employees to be disqualified from participating in a matter "if it would have a direct and predictable effect on the employee’s own financial interests."

Officials from the Office of Government Ethics are expected to recommend a criminal investigation and that referral is expected to be part of a report issued last week by SEC Inspector General H. David Kotz, who began investigation Becker's role in reversing an earlier agency compensation plan for Madoff victims after the Becker family's $2 million Madoff stake was disclosed publicly last February. Becker's Tenure at the SEC. Becker joined the SEC in February 2009 at the behest of Chairwoman Mary Schapiro.  It is Becker's contention that he had advised Schapiro and SEC chief ethics officer William Lenox of his financial interest in a Madoff account," either shortly before or after" joining the agency in February 2009. And, according to Becker, Lenox approved Becker’s role in the Madoff compensation deliberations after only a brief review. It was also around that time, in early 2009, that the SEC decided on a method that would give investors a claim to only the money they had put into their Madoff accounts.  Yet, later that year, in his role as General Counsel, Becker recommended to the SEC Commissioners that the Commission reverse its initial decision, arguing that the commission should allow victims to keep some of their gains because the investment would have grown over time even in a low-interest account -  an approach that would benefit the Becker family. Becker made these recommendations while knowing that he had received through an inheritance from his late mother, an investment with Madoff.  He also knew, or should have known, that he was acting in violation of the government's Conflict of Interest policy, discussed above. In any case, the SEC went along with David Becker's arguments and voted to approve the compensation plan backed by Becker - i.e., the Agency changed its victim compensation methodology to the more generous approach. Mr. Kotz is expected to report that none of the commissioners knew of the Becker family’s Madoff holdings when they approved the new compensation plan.  As a result, Kotz may urge the full commission to put the victim compensation matter to another vote. [NY Times, 9/17/11]