Case of Benevolence or Biased Behavior?

“Panel Presses SEC on Ethics”

The Wall Street Journal: March 10, 2011

By: Jessica Holzer and Siobhan Hughes

Availability: Panel Presses SEC on Ethics

The ethical quandary relevant to this article revolves around the issue if SEC General Counsel David Becker should have been removed from Bernie Madoff’s Ponzi scheme case because of his mother’s unfortunate role as an investor in the fraud. SEC officials and House members lashed out against Becker in light of a recent class action lawsuit filed by the victims of Madoff’s scam because of Becker’s recommendation “for victim payouts to be increased for longer-term investors to account for inflation,” which is “a method that could benefit him and his brothers” (Holzer, J. & Hughes, S., WSJ, 2011). 

While Becker’s initial request for participation in the Madoff case was approved by the SEC’s ethics counsel, his later proposal of increasing payouts to longer-term investors raised questions regarding Becker’s intent: to truly help those who lost greater fortune or to boost his own compensation. This accusation raises the question – what was Becker’s motivation behind his suggestion? 

As referenced in chapter five of Organizational Behavior by Tayla Bauer and Berrin Erdogan, there are various motivational theories that can explain Becker’s behavior. 

Take David McClelland’s acquired-needs theory for example; an individual experiences three needs during his or her life, and Becker’s need for power can be applied to his request for involvement in the Madoff case. Although the need for power is not always a destructive behavior, it can certainly tempt the individual into using that power for his or her own good and prestige. From the surface, the need for power can be seen as a viable conclusion to why Becker requested assignment to Bernie Madoff’s Ponzi scheme case.

Another explanation of Becker’s contribution is equity theory. In this theory, an individual perceives fairness based on the situation. The other Madoff victims’ perception of fairness compared to Becker’s perception of fairness is undoubtedly different. Becker seems to have a biased stake in the Madoff case since his late mother’s compensation would benefit him and his brothers by a whopping $2 million. Other victims of the Ponzi scheme do not perceive Becker’s involvement as fair since he was indirectly related to the fraud and because he would receive greater compensation. 

There are many motivational theories able to explain Becker’s participation in the Madoff case, whether it was greed, power, vengeance, or simply to enhance compensation for shareholders with greater seniority. From my personal standpoint, David Becker acted with selfish, biased behavior to benefit him and his brothers. 

I will update this story as new information becomes available regarding the lawsuit and how the SEC will handle such ethical situations in the future – stayed tuned!

- Jon Worthey