Dear Chairman Mary Schapiro:
Though I had doubts when you were hired–you’re no Joe Kennedy–I was willing to give you the benefit of the doubt. No more. Your actions in the David Becker conflict of interest scandal show the public cannot trust you to exercise good judgment in the public’s interest. Given Wall Street’s central, fraudulent role in bringing down our economy, we the people need an Securities Exchange Commission Chairman who is firmly on the side of the public.
Please resign so the President has another opportunity to nominate a Main Street champion. Surely Candidate Obama would nominate a SEC Chairman who understands which prosecutions and regulations best keep the greed of corporate executives in check, protecting Main Street investors and their pension funds. I realize you are who President Obama nominated, but Candidate Obama needs Main Street votes.
What You Did Wrong, Chairman Schapiro
When Becker, your friend and subordinate, joined the SEC he told you he and his brothers had inherited Madoff money. Becker probably didn’t emphasize the fact that $1.5 million of the $2 million they inherited was stolen from other innocent Madoff “investors.” But you knew the Becker family had to be Madoff “winners”, meaning they innocently received stolen money, probably lots of it.
You knew Becker was a Madoff winner because he told you the inherited account had been liquidated before the fraud was discovered. All the accounts liquidated before the Ponzi scheme’s collapse were paid in full at the value of their account statements, meaning, those “investors” were given all the fake profits Madoff claimed he had earned them.
You knew Becker was a Madoff winner and yet you let him shape the official SEC position on whether or not Madoff winners could be sued to “claw back” the stolen “profits”. That is, you let him use his official position to try to keep the $1.5 million of other people’s money that he and his siblings inherited, or at least minimize how much could be clawed back.
You did that even though SEC policy prevented people with much more tangential connections to Madoff’s Ponzi scheme from working on Madoff matters.
Yes, Becker could say, he had ethics counsel’s blessing, even got it twice. But surely that can’t have seemed right to you. I mean, the conflict could not be more clear or central to his work. Did you have a conversation with ethics counsel about the conflict? Ask him what his reasoning was? Surely you would have authority to override ethics counsel anyway, and simply ensure Becker worked on different matters.
But you didn’t. And don’t play dumb: your actions suggest you understood the issue.
Congress asked the SEC to testify on precisely the Madoff legal issues Becker was working on. You and Becker’s coworkers realized he would be a natural witness. But then Becker made clear if he testified he would disclose his conflict at the very beginning of his testimony–a most media-genic opportunity to disclose it–and you and your lieutenant decided it would be best to have a different witness. After that, everyone just kept mum about the situation until the media outed Becker and Congress started asking questions.
How is the public supposed to trust that you have its best interests at heart?
Normal corporate executive greed slowly bleeds the public dry. (See, for example, the way executives raided the savings for workers’ pensions to pay themselves bigger bonuses, and shifted the now-unfunded contractual obligations to the taxpayer.) But Wall Street greed is more acutely poisonous.
Wall Street crashed the economy and defrauded our pensions in pursuit of bonuses. Wall Street greed remains dangerously out of control. Yes, your SEC has been bolder than Attorney General Eric Holder’s Department of Justice, but that doesn’t mean the SEC is fulfilling its potential. It’s just an indictment of our Justice Department.
Abigail Caplovitz Field
UPDATE: The fact that a new U.S. District Court ruling by Judge Jed Rakoff would shield Becker from the claw back is irrelevant to the conflict of interest scandal and your demonstrated poor judgment. The state of the law at the time suggested the bankruptcy safe harbor provision cited by Rakoff didn’t apply to Ponzi schemes.