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oig-560

oig-560

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REPORT
OF
INVESTIGATION UNITED STATES SECURITIES
AND
EXCHANGE COMMISSION OFFICE
OF
INSPECTOR GENERAL Case
No.
OIG-560 Investigation
of
Conflict of Interest Arising from
Former
General Counsel's Participation in Madoff-Related Matters September 16,2011 
 
Table
of
Contents
INTRODUCTION AND BACKGROUND ....................................................................... 1 EXECUTIVE SUMMARY ................................................................................................ 2 SCOPE
OF
THE OIG INVESTIGATION .......................................................................
13 I. 
Review
of
E-mails..............................................................................................
13 
II. 
Document Requests and Review
of
Records .....................................................
13 
III.
Testimony and Interviews ..................................................................................
14 
RELEVANT STATUTES, RULES, AND REGULATIONS ..........................................
18 
RESULTS
OF
THE INVESTIGATION ..........................................................................
23 
I. 
Background ........................................................................................................
23 A. 
The Securities Investor Protection Corporation and Act ................................
23 
B. 
The SEC's Oversight ofSIPC ........................................................................
25 
C. 
The Madoff Liquidation .................................................................................. 26 
II. 
From the Outset, the SEC Played a Substantive Role
in
the Madoff Liquidation ............................................................................................ 26 
A.
As Early As December 2008, the
SEC
Began
to
Discuss Madoff Liquidation Issues with SIPC ......................................................................... 26 
B. 
SIPC and the Trustee Advocated the Money InlMoney Out Method
of
Detennining Customer Net Equity .................................................................
29 
C. 
The SEC's Initial Consideration
of
Issues in the MadoffLiquidation Included Clawbacks ........................................................................................ 32 
D.
The SEC Reached Consensus
As
to
The Money InlMoney Out Method ....... 34 
III. 
Becker Returned
to
the Commission Late in February 2009 and Disclosed His Interest in a BMIS Account to Chainnan Schapiro ....................
35 A. 
Becker Joined the Commission
as
General Counsel and Senior Policy Director
in
February 2009 ...................................................................
35 
B. 
Around the Time that Becker Returned
to
the Commission, He and Chainnan Schapiro Discussed His Mother's BMIS Account ..................
37 IV. 
Becker and
OGC
Detennined the Staffs Recommendation
to 
the Commission
on
the Net Equity Issue ...........................................................
38 
 
A. The Commission Received Submissions from
Fonner
SEC Commissioner Nazareth and Others In Support
of
the Last Account Statement Method for Detennining Net Equity ............................... 40 
B. 
Becker and OGC Attempted to Craft
An
Approach Based
on
the Last Account Statement Method ............................................................... 42
C.
OGC Continued
to
Consider the Last Account Statement Method and Other Possible Methods During the Summer
of2009
................ 45 
D.
Throughout This Entire Time, the Trustee Continued to Administer the Madoff Liquidation Both by Paying Claims and Bringing Clawback Suits .. 48 
E.
Becker and OGC Fonnulated the New T-Bill Approach ...............................
51 
F.
Becker and OGC Decided on the Constant Dollar Approach ........................ 52 
G. 
Becker Recommended the Constant Dollar Approach to the Commission .... 55
H. 
OGC, Under Becker's Direction, Led the Discussion at the Commission Meeting to Consider the Appropriate Net Equity Detennination ................... 57 
1. 
SIPC and the Trustee Did Not Support the Constant Dollar Approach ......... 60 
J.
.The Approach Used to Detennine Net Equity Affects Clawbacks ................
61 
1. 
The Last Account Statement Method Likely Would Preclude Clawbacks
.
65 
2.
The Constant Dollar Approach Would Affect Clawbacks .......................... 66 3. The Constant Dollar Approach Would Decrease the Amount Sought from Becker ..................................................................................... 68 V. Becker Also Worked On SIP A Amendment That Would Have Affected the Trustee's Ability to Bring Clawbacks .......................................... 68 VI. Becker Was Initially Scheduled to Testify at a Congressional Hearing Regarding MadoffiSIPC Issues ......................................................................... 70
A. 
Subsequently,
It
Was Detennined that Becker Would Disclose His MadoffInterest
If
He Were to Testify, and the Decision Was Made for Becker Not to Testify ......................................................................
72 B. 
It
Was Decided that Conley Would Testify at the Congressional Hearing, and Becker's Interest in a Madoff Account Was Not Disclosed .................... 76 
C. 
The Hearing, Including the Preparation Process, Involved Consideration
of
Clawbacks ....................................................................................................... 77 VII. Becker Was Named as Defendant in A Clawback Action ................................. 79 VIII. The SEC Responded to March 2011 Congressional Requests for Infonnation. 85 IX. Becker Worked On Other Madoff-Related Matters .......................................... 90 
ii

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