SEC head offers regrets over Madoff ethics snafu

Committee Chairman Darrell Issa (R-Calif.) said that revelation, coupled with the fact that the SEC ethics counsel cleared Becker to continue working on Madoff-related matters, could be the greatest threat to the agency since the original Madoff scam.

“Can we trust an SEC where the process allows an individual to inform the chairwoman, to inform the ethics individual … and effectively get a clean bill of health?” he said.

“Although no regulatory agency can be expected to be perfect, a failure of this magnitude clearly is not acceptable,” added Rep. Mike Quigley (D-Ill.).

Schapiro said that when Becker began a second stint as general counsel in 2009, he told her that his mother, who died in 2004, once had an account with Madoff. However, she said she could not remember if Becker told her that he had inherited funds from that account. She directed him to consult the SEC’s ethics counsel, who determined it did not represent a major conflict of interest.

But she now wishes the SEC had taken additional steps.

“It did not strike me that his mother’s account … would present a potential conflict of interest,” she said. “I realize in light of this incident, as chairman, I have to ensure that we go beyond what may be required.”

She promised that the agency, under the direction of a new ethics counsel, was conducting a “top-to-bottom” review of its ethical program. In addition, she has asked the SEC’s Inspector General to review the matter.

“We will learn from this experience, and we will take all actions necessary to earn the trust that the public places in us,” she said.

Rep. Connie Mack (R-Fla.) went so far as to read Schapiro the SEC’s regulations pertaining to ethics, which states that its employees must “avoid situations which might result either in actual or apparent misconduct or conflicts of interest.”

Despite the scandal, both Democrats and Republicans offered words of praise for Schapiro herself, who took over the agency in 2009 in the wake of the financial crisis. Issa noted she “inherited an organization that had known flaws.”

Rep. Elijah Cummings (D-Md.), the ranking member on the panel, agreed.

“You inherited a mess,” he said. “We understand that.”

Democrats used the hearing to yet again stump for a larger budget for the agency, as it takes on the substantial task of implementing major parts of the Dodd-Frank financial reform law.

The Obama administration has proposed in its 2012 budget a major boost for the SEC, expanding its budget from $1.118 billion to $1.428 billion. But in their comprehensive spending package, House Republicans wanted to cut the agency’s budget, shrinking it to $1.069 billion.

Schapiro, as she had in the past, insisted that a bigger budget was necessary after Dodd-Frank.

“Without additional resources, we will not be able to meet these new responsibilities in the way Congress intends,” she said.