PJM Exclusive: Congress Questions SEC Chief's Involvement in New Madoff Scandal

Two congressional leaders are directly challenging Security and Exchange Commission Chairwoman Mary Schapiro as a new Bernard Madoff scandal engulfs the agency, this one involving charges of conflicts of interest by Schapiro's own general counsel.

Pajamas Media has obtained a copy of the letter sent to the SEC chairwoman.

Rep. Darrell Issa (R-CA) and Sen. Charles Grassley (R-IA) today sent the letter, demanding she explain why the she appointed General Counsel David Becker to represent the agency in the Ponzi scheme fraud case when she allegedly knew that Becker had personally profited from Madoff. The lengthy letter, which asks 35 questions of Schapiro and her aides, calls the allegations "alarming."

“Becker’s participation in any aspect of the Commission’s involvement with the aftermath of Madoff’s fraud suggests multiple conflicts of interest,” the two tell Schapiro in the letter. Her failure raises “further questions about its management and independence.“

Rep. Issa is chairman of the House Oversight and Government Reform Committee. He has recently reinvigorated the committee's examinations of government fairness and openness. Sen. Grassley is the ranking Republican on the Senate Judiciary Committee.

An aggressive congressional probe regarding another SEC/Madoff scandal may give President Obama new headaches, raising fresh questions about the president's promise of clean government, fairness towards wronged investors, and handling of the economy. It also could weaken or endanger Schapiro's tenure.

The charge that the SEC may have shortchanged Madoff victims, however, may carry the biggest impact of all.

Schapiro apparently assigned Becker to represent the agency in the aftermath of the Madoff case even while reportedly knowing his family had received money from Madoff. Becker's late mother’s estate is named defendant in a lawsuit seeking $1.5 million in profits they made from Madoff. The lawsuit was filed by Irving Picard, the official trustee who is trying to recover money for the Madoff victims.

Originally, the SEC was widely criticized as incompetent in uncovering the Madoff scandal. An SEC inspector general report said the agency overlooked "more than ample" evidence that red-flagged a possible Ponzi scheme. In her confirmation hearings, Schapiro vowed to “reinvigorate SEC enforcement efforts in the wake of the Bernard Madoff investment scandal."

Issa and Grassley say the case exposes multiple ethical lapses within the agency. They charge that while Schapiro knew Becker had received money from a Madoff account, it appears she never ordered Becker to determine his family's possible “clawback” liability in the Madoff bankruptcy case. They ask the SEC chief why she apparently did not ask Becker whether the advice he was providing might affect his personal financial interest. Also troubling, an SEC ethics counsel reportedly gave Becker a waiver request 25 minutes after Becker made it. The SEC official, William Lenox, reportedly accepted Becker’s incorrect assertion that the work would not affect his financial interest.

It also has been reported that Becker’s financial interest and conflicts were not disclosed to the Commission’s inspector general or to the public until Becker was sued by Picard in the Madoff bankruptcy case.

Becker did ask for a waiver to continue representing the case, "but did not fully disclose his financial interest to the ethics office," a congressional aide told Pajamas Media.

Becker left the SEC in late February.

The SEC has until March 7 to reply to the lawmakers.