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What to Watch for at the House Government Oversight Hearing on David Becker and the SEC

Today a joint session involving the House Committee and Government Oversight and Reform and the Financial Services Oversight Committee take on the issue of the former top attorney at the SEC, David Becker, and if there was a conflict of interest in his involvement with the Madoff matter. The issue is whether or not Becker, having inherited part of his mother’s estate which had invested with Madoff, and which was subject to clawback action, should have recused himself from the matter. The Office of the Inspector General, whose report prompted these hearings, has taken the position that Becker’s position was compromised and may have factored into his recommendations that a modification to the pure cash in-cash-out position (CICO), advocated by SIPC and another section of the SEC (the part overseeing SIPC) was in order. The Inspector General has referred this issue to the Justice Department.

Let’s be clear: we feel that Becker’s involvement in this matter was extremely unfortunate. Despite guidance from the SEC Ethics Counsel that he was not compromised, there’s no way the optics would look good: this had to appear as a conflict of interest, plain and simple.

The irony here is that Becker’s efforts to provide some alternative to the CICO method, a method which gives no thought to the detrimental impacts of such an approach, are being denigrated when it is eminently clear that SIPC and the Trustee had one overriding concern: to protect the SIPC fund. Referred to in various places in the OIG report, the fact remains that SIPC and Trustee had to be deeply concerned about having insufficient funds to cover the upcoming SIPC claims, that using final account statements of net equity would put both the SIPC’s chronic underfunding of the SIPC fund, and the SEC’s complicity under the microscope.

So while this hearing is likely to continue the deboning of Mr. Becker, the real issue that needs to be driven relates to the chronic incompetence of the SEC and its willingness to be a pawn to the industry-run SIPC. Consider the following SEC behaviors: its allowing both the Madoff and Stanford debacles to expand to multi-billion dollar debacles, its unwillingness to take control of the rogue-like behavior of a SIPC whose primary function seemed to be to keep fees low to the broker-dealer industry, and finally its willingness to jettison investor protection by allowing SIPC to take the position, for the first time in history, that investment statements mean nothing. This latter position, that SIPC protection -- as a Congressman recently stated – “isn’t worth the paper it’s printed on” poses an extraordinary danger to all investors and confidence in investment markets.

For years the SEC has permitted SIPC to have its way and charge the brokerage community a mere $150 per year, not per investor, but per firm to fund its insurance fund.

This pursuit of Becker, frankly, is little more than a red herring – the real culprits are the culture of the SEC and SIPC – permitting this assault on investor protection and the Trustee to collect perhaps hundreds of millions of dollars in fees an taking the approach that’s so devastating to investors, and transferring the costs to the American taxpayer.

That’s where the real conflicts of interest lie. Let’s see who’s willing to call them on it.


Ron Stein, CFP


For a copy of testimony submitted by NIAP discussing some of these issues, click here