Federal ethics officials are expected to recommend that the Justice Department begin a criminal investigation into actions taken by David M. Becker, the former general counsel of the Securities and Exchange Commission, who determined the agency’s proposal for compensating victims of the Bernard Madoff Ponzi scheme when he had a financial interest in the outcome.

A possible criminal referral from the Office of Government Ethics is expected to be part of a report issued next week by H. David Kotz, the inspector general of the S.E.C., according to two people briefed on the report’s contents.

Mr. Kotz began investigating Mr. Becker’s role in reversing an earlier agency compensation plan for Madoff victims after the Becker family’s $2 million Madoff stake was disclosed publicly last February.

Federal conflict of interest law 18 U.S.C. § 208 requires government employees to be disqualified from participating in a matter “if it would have a direct and predictable effect on the employee’s own financial interests.”

Mr. Becker joined the S.E.C. in February 2009 at the urging of its chairwoman, Mary L. Schapiro. In that role, he persuaded the S.E.C. to change its victim compensation methodology to a more generous approach, even though he had received a Madoff stake through an inheritance from his late mother, who had invested with the money manager.

Mr. Becker left the commision this year.

William R. Baker III, a lawyer for Mr. Becker, declined to comment for this article. A spokesman for the S.E.C. declined to comment because the commission had not seen the report.

In early 2009, the S.E.C. agreed on a method that would give investors a claim to only the money they had put into their Madoff accounts.

But in the summer of 2009, Mr. Becker reversed this decision, arguing that the commission should allow victims to keep some of the gains their investments had generated, since the investment would have grown over time even in a low-interest account. The Becker family would benefit from this approach.

The S.E.C. approved the compensation plan backed by Mr. Becker. Mr. Kotz is expected to report that none of the commissioners knew of the Becker family’s Madoff holdings when they approved the new compensation plan. As a result, Mr. Kotz may urge the full commission to put the victim compensation matter to another vote.

Previously, Mr. Becker said that he had advised Ms. Schapiro and the S.E.C’s chief ethics officer of his financial interest in a Madoff account, “either shortly before or after” joining the agency in February 2009. The ethics officer, William Lenox, approved Mr. Becker’s role in the Madoff compensation deliberations after only a brief review. Mr. Lenox reported to Mr. Becker.

(Source: NY Times)