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Schapiro tries to mend SEC-House relations

Wants to settle furor over responses at Madoff hearing

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By Dan Jamieson

February 22, 2009 6:01 am ET

Securities and Exchange Commission Chairman Mary Schapiro will be meeting with two senior members of a House subcommittee in an attempt to patch up relations after a disastrous Feb. 4 hearing at which senior SEC officials ducked questions on the Bernard Madoff scandal.

"We're trying to work [a date] out," said Erica Elliott, a spokeswoman for Rep. Scott Garrett, R-N.J., the ranking minority member of the House subcommittee on capital markets.

The closed meeting would include Mr. Garrett and Rep. Paul Kanjorski, D-Pa., the subcommittee chairman, she said.

Calls to a spokeswoman for Mr. Kanjorski were not returned.

Fireworks erupted at the Feb. 4 hearing after SEC acting general counsel Andy Vollmer cited executive and other privileges in defending SEC officials' decision not to answer questions about how the SEC missed the Madoff fraud.

The officials also claimed they did not to want to impede ongoing investigations.

The SEC later denied that Mr. Vollmer had cited executive privilege.

Immediately after the hearing, Ms. Schapiro sent a letter to Mr. Kanjorski and Mr. Garrett offering to meet with them.

In addition, two days later, she announced that David Becker, SEC general counsel from 2000 to 2002, would be returning to the agency this month in the same post.

Meanwhile, Mr. Vollmer's claim of executive privilege and the ducking and weaving by agency officials raised eyebrows.

Joel Blumenschein, president of Freedom Investors Corp., a Hartland, Wis.-based broker-dealer, said the SEC officials probably had no good answers.

"The root of the problem is simple," he said. "The people who are running [the regulators] are accountants, lawyers and politicians. They don't know what to look for."

Executive privilege is an implied power of the presidency, said Mark Rozell, a professor of public policy at George Mason University in Arlington, Va.

"It may be asserted only by the president, or by certain high-level executive branch officials under the direction of the president," he said.

At one point during the hearing, Mr. Vollmer said the SEC supported his claim of executive privilege.

But "the SEC cannot vote as a committee to assert executive privilege or to allow some SEC official to do so," Mr. Rozell said. "That really is absurd."

At the hearing, Mr. Vollmer's claim of executive privilege provoked a sharp rebuke from another subcommittee member, Rep. Gary Ackerman, D-N.Y.

"You come here and fumble through make-believe answers that you concoct, and attribute it to executive privilege that you've not consulted with [the] executive branch on," Mr. Ackerman said.

Also testifying at the Feb. 4 hearing was Madoff tipster Harry Markopolos.

His efforts to get the SEC to investigate Mr. Madoff resulted in an investigation, but the agency closed that inquiry in 2006 after it failed to find evidence of any fraud.

E-mail Dan Jamieson at djamieson@investmentnews.com.

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