By ANDRE FRANCISCO
A Securities and Exchange Commission (SEC) attorney has alleged that over the past 17 years, the SEC destroyed 18,000 documents from preliminary investigations into banks and financial institutions--a potential violation of a federal law requiring agencies to maintain their records.
Matt Taibbi broke the news about the allegations last week in Rolling Stone and highlighted the huge implications of this unauthorized and certainly shortsighted practice:
By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG.
There are many more gruesome details about the extent of the document destruction, the denial of the deed and the lost potential that all of these documents represent in the full story.
An SEC attorney named Darcy Flynn alleged the document destruction in a July letter to Members of Congress. He was involved in managing SEC records and brought his concerns to his superiors, but according to Flynn, that only prompted efforts to hide the policy.
Agency files are generally supposed to be preserved under the Federal Records Act. The SEC does not have the authority to destroy the documents (called Matters Under Inquiry, or MUIs) without approval from the National Archives and Records Administration (NARA).
NARA said in a statement that although it “is satisfied that the destruction has stopped, NARA remains concerned that the SEC has been slow in creating records schedules for review and approval by the Archivist of the United States that will ultimately determine how long these [Matters Under Inquiry] records need to be retained.”
Taibbi linked this systematic document destruction to a larger problem with the SEC enforcement division, saying that “the SEC's top policemen almost always wind up jumping straight to jobs representing the banks they were supposed to regulate.”
This problem of the revolving door between the SEC and the industry it oversees is something that POGO highlighted with our SEC Revolving Door Database.
Two of the former SEC officials that Taibbi mentions appear in our database: Linda Thomsen and Stephen Cutler. Both Thomsen and Cutler have been accused of improper activities relating to their former positions, as has Spencer Barasch, who Taibbi describes but does not name.
Barasch slowed down an SEC investigation into a $7 billion Ponzi scheme run by Allen Stanford. After leaving the SEC, Barasch then represented Stanford in his Ponzi scheme case despite being told by the SEC Ethics Office that he was prohibited from representing Stanford, according to an SEC Office of Inspector General (OIG) report.
The SEC OIG is investigating the destroyed documents, and for its part, NARA is also “seeking answers,” according to the Rolling Stone article. Also, Sen. Charles Grassley (R-IA) has sent a letter to the chairman of the SEC about Flynn’s claims, so there might be more information about this policy coming out soon.
Andre Francisco is a POGO communications associate.
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