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f UNITED STATES8S E C U R I T I E S A N D EX C H A N G E C o S S I O N
P.W ASH IN GT ON , D .C . 2 0 5 4 9
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March 8, 2011
The Honorable Spencer Bachus The Honorable Jeb Hensarling
Chairman Vice ChairmanCommittee on FinancialServices Committee on Financial Services
U.S. House of Representatives U.S. House of Representatives
2129 Rayburn House Office Building 2I29 Rayburn House Office BuiMingWashington, DC 20515 Washington, DC 20515
The Honorable RandyNeugebauer The Honorable Scott Garrett
Chairman ChairinanSubcommittee on Oversight and Investigations Subcommittee on Capital Markets andU.S. Houseof Representatives Government Sponsored Entities
2129 Rayburn House Office Building U.S. House of Representatives
Washington, DC 20515 2129 Rayburn House Office BuildingWashington, DC 20515
Dear Chairmen Bachus,Neugebauer and Garrettand Vice Chairman Hensar1ing:
I write in response to your letter of March 1, 2011, seeking information. regarding theinvolvement of former General Counsel David M. Becker in Commission activities relating tothe Bernard L. Madoff Ponzi scheme. Thank you for the opportunity to respond to questions you
have regarding this issue. Last Friday, March 4, 2011, I asked the Commission's Office of
Inspector General ("OIG") to examine the matter fully, and I look forward to working with. you
and the Inspector General to promptly and thoroughlly review the matter.
As you are aware, Mr. Becker's last day at the Comrmssion was February 25, 2011,
having completedthetwo-year commitment he made to the agency when he returned in 2009'.Upoii Mr. Becker's departure, a new General Counsel was appointed and assumed those duties
on February 28, 2011. When your March 1 letter seeking certain information and documents byMarch 7 was received by the Commission's Office of Legislative and Intergovernmental Affairs("OLIA"), it was forwarded, asis typica1for requests of this nature, to the Office of the General
Counsel ("OGC") for assistancein expeditiously responding to yourrequests.
As you may also be aware, on March 3, 2011, I received a letter from House Oversight
and Government Reform ChairmanDarrell Issaand Senator Charles Grassley seekinginformation similar to that which you requested. On the evening of March 4, OLIA staff receivedan e-mail from members of the staffs of Chairinan Issa and Senator Grassley expressing the view
that the OIG, and not anyone in the OGC, should be given primary responsibility for collecting
the relevant documents. The e-mail also communicated the view that any further investigationbeyondthatwhich was required to respond to the narrative questions in their March 3 lettershould be the responsibility of the OIG.
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Notwithstanding that communication, on March 7, 2011, I received another letter from
Chairman Issa and Senator Grassley requesting that we limit the involvement of the OGC in boththe gathering of documents and the preparation of the written responses called for by their March
3 letter, despite the fact that Mr. Becker was no longer employed as General Counsel. In addition,the OIG expressed concern about attorneys outside that office conducting the witness interviews
necessary to respond toyour inquiries and document requests. Accordingly, in an abundance of
caution, I directed that theOGC staff be recusedfrom either the gathering of documents orthe
preparing of narrati.ve responses to this letter and to the March 3 letter from Chairman Issa and
Senator Grassl~ey.Instead, as was discussed yesterday with HouseFinancial Services Cominittee
staff and the OIG, I have decided that the OIG will both gather the docuinents responsive to your
requests and conduct the witness interviews necessary to prepare responses to certain questions.
This should further ensure that the integrity of both the OIG's investigation and the
Commission's. responses to your inquiries is fully maintained.
As a result, my ability to answer your questions is limited to my personal knowledge, In
answering the questions, my responses have been prepared without the assistance of anyone fromthe OGC. In. addition, I should note that, because I have not had an opportunity to review the
relevant documents that the OIG may gather or otherwise refresh my recollection, I am offering
my answers based on my best recollection of the events in question, some of which occurred aslong ago as two years. Based on my memory of the events in question., my responses follow:
1. In Mr. Seeker's February 25 response, he notes that "either shortly before or
after [he] returned to the SEC in 2009, [he] informed both Chairman Mary
Schapiro and ihen-SEC Ethics Counsel William Lenox" about his interest in his
mother's Bernard L. Madoff Investment Securities ("NIadoff") account. Pleasedetail the comniunication(s) between you andMr. Seeker regarding his another's
Madoff account.
I recall that, shortly after Mr. Becker began his service as General Counsel in 2009, heinformed me that his mother had had an account with Mr. Madoff, that the account
had been closed years earlier, and this his mother had died approximately five years
earlier. I do notrecall asking Mr. Becker for or receiving additional information.
After Mr, Becker provided the initial information to me regarding his mother's closedMadoff account, I recall having an additional discussion with Mr. Becker regarding
the matter in the late fall of 2009. That discussion concerned the designation ofCornrnission staff to testify before a congressional subcommittee regarding legal
issues arising from the liquidation of Bernard L. Madoff Securities LLC being
conducted by the Securities Investor Protection Corporation. During that discussion,either Mr. Becker or I referred to the information he had previously provided to inc
regarding his mother's closed Madoff account.
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2. Did you discuss the conversation you had with Mr. Becker and/or the substance
thereof with anyoneelse, including other Commissioners, membersof your staff,
the Office of the Ethics Counsel ("Ethics Counsel" ), the Office of Government
Ethics ("OGE"}, or the Office of Inspector General? Please provide any notes,einail, or other documentation referring or relating to the conversation you had
with Mr. Becker or auy relatedconversations.
I do not recall discussing my conversations with Mr . Becker wi th anyone else.
However, it is possible that the discussion with Mr. Becker regarding the designati~oii
of Commissiioii staff to provide congressional testimony in the late fall of 2009 also
involved other individuals. With regard to yoiir request for notes, emails, or otherdocumentation, I have deferred to the OIG with regard to the collection of any
responsive documents.
3. As the government official responsible for appointing Mr. Becker to his position
in 2009, what steps did you take to manage tbe appearance of or actuall conflict
of interest presented by Mr. Becker's financial interest in the NIadoff Securities
investorProtectionCorporation ("SIPC"} liquidation?
When Mr. Becker initially notified me that his: deceased mother had had a Madoffaccount that had been closed years earlier, the issue did not appear to me to present a
financial conflict of interest. However, I relied on Mr. Becker to present any ethics
related issues, including appclaricc issues, to Ethics Counsel and on Ethics Counselto perform his review and analysis of such situations. I had confidence both in Mr.
Becker as a responsible aiid experienced senior government official and in Mr. Lenoxas a long-time and highly regarded agency ethics officer. It is my understanding that areview by Ethics Counsel did occur as expected and was documented.
4. In Mr. Becker's February 25 response, he states,that in or around May 2009, he
received a letter from "a number of llaw firins" regarding a legal position taken
by the Madoff trustee. Please provide a copyof this letter and a list of clients
whose interests the law firms sought to advance. Please a)so describe your
involvement in the consideration of any matter raised by this letter, including
detail any meetings or other communications you had with these law firms, the
lawyers or their clients about the same.
While I do notrecall receiving the referenced letter, I may well have. Again, I have
deferred to the OIG to gather responsive documents, Although I have not had the
opportunity to review the letter at issue iii preparing these responses, I did have
meetnigs with both Commission staff and SIPC representatives iegai'Ching the
positions the SEC might take in Madoff-related litigation. In late 2009 and 2010, the
Commission subsequently authorized staff to file legal briefs in Madoff-related
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proceedings concemirig legal issues under the Securities Investor Protection Act, and
I participated in those decisions,
5. In Mr. Becker's February 25 response, he states that he consulted with theEthics Counsel about his interest in his mother's Madoff account and was
advised that "a reasonable person with knowledge of all of these facts would not
question [his] impartiality." What is the Ethics Counsel's policy for
memorializing conversations with SEC employees when asked for an opinion
regarding a possible conflict of interest? If written documentation exists from
the Ethics Counsel related to Mr. Becker's inquiry regarding Madoff-rellated
matters, please provide us with a copy of these documents. If no such documentsexist, please provide a detailed explanation of why such documents do no exist
and the reasoning behind the Ethics Counsel's opinion. Were you aware of the
Ethics Counsel's advice at the time that Mr. Seeker received it? If not, why not?Do you agree with the advice given to Mr. BeckerP Why or why not?
As noted above, in order to honor the Inspector General's request that witness
interviews and document collectionbe conducted by the OIG, I do not have the
requested documents or the ability to speak to the Ethics Counsel's documentationpolicies. I do not recall whether I was awareof theEthics Counsel's advice to Mr.Beckerat orabout the time it was given. Consistent with the DIG's request, I have not
reviewed thewritten advice givento Mr. Becker, and thus I cannot express aview
thereon.
6. Harry Markopolos first presented his analysis of the NIadoff Ponzi Scheme tothe SEC in 2000. Please provide us with the naines of any individuals who havebeen employed by the SEC since 2000 who had a financial interest in a Madoff
account. We understand that you may not have all o f the relevant information,
but we expect that you will request such information from the SIPC. We alsoexpect that you willi cross-reference all information provided by SIPC with SEC
employmentrecords.
As noted above, it is my expectation that the OIG will gather the relevarit
documentation responsive to thisrequest.
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As I noted above, some of the events about which you have inquired occurred several
years ago, and I have not had. the opportunity to refresh my memory be reviewing all relevantdocuments or discussing the matter with other relevant witnesses. Nevertheless, I have made my
best attempt to respond to your inquiries. I look forward to working with you and the OIG toensure this issue is fully reviewed.
Sincerely,
Mary L. Schapiro