Did The Sec Cover Up The Madoff Scandal?

Since the day the Bernie Madoff scandal became public, many commentators and Congressional leaders have wondered why it took the SEC so long to discover the largest Ponzi scheme in the history of the United States. Harry Markopolis, the Madoff whistleblower, says he blew the whistle a decade earlier but no one would listen. Recent revelations that the SEC's top lawyer reaped over $1.5 million in profits from a Madoff investment account have suddenly rekindled the flames.

Madoff trustee Irving Picard sued SEC General Counsel David Becker and two of his brothers for their ill-gotten gains. The receiver seeks the return of $1,544,494, which represents the profits from the Madoff account. Actions to recover profits are called clawback suits.

Madoff was convicted of operating a Ponzi scheme and is currently serving a 150-year prison sentence. Prosecutors and the court's receiver say that earlier investors who were lucky enough to cash out, like the Beckers, simply received stolen money.

No invesments were ever made by Madoff. Without real investments, there cannot be any profits. In other words, the "profits" some made in their accounts were really not profits. Madoff was robbing Peter to pay Paul.

As new investors joined, their money was used to pay existing investors who wished to cash out. When the scheme collapsed, those with open accounts were left with nothing. The court subsequently appointed a receiver to liquidate Madoff's assets and try to recoup some of the "profits" received by earlier investors and redistribute them to those that lost everything. As noted above these are called clawbacks. The Madoff receiver filed suit to clawback the "profits" received by Becker's mother.

In fairness to Becker, there is no allegation that he invested with Madoff. Rather he became an executor of his mother's estate after her passing. It was Becker's mother that had invested with Madoff. Becker has said that he had no involvement with his mother's investment account. He was also in private practice at the time his mother opened the account with Madoff.

On February 1st, Becker announced he was resigning his post at the SEC.

Becker has publicly stated that he plans to "do the right thing." As SEC's top lawyer, the only right thing to do is pay back the money like most other investors sued by the receiver have done.Did the SEC cover up the Madoff scandal? Probably not but the new revelations will keep the speculation alive for years to come.