I first read about this today in MarketWatch, an on-line market info site owned by Dow-Jones. I quickly switched to Rolling Stone which broke the story. In a thorough, investigative piece, RS writer Matt Taibbi uncovers not just the unauthorized destruction of documents by SEC staff, but exposes the dynamics behind Washington’s ‘revolving door’ culture, in which agency officials charged with policing the financial industry end up being ‘hired’ (rewarded?) by those companies they had previously been investigating.
It is a fine piece of investigative journalism:
For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. 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. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – “18,000 … including Madoff,” as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.
The corporate line will of course be: if they couldn’t come up with enough to launch a full investigation against our company, then we are without liability and should not be tainted ‘on the record.’ Taibbi easily dismisses that argument:
Flynn (the wistle-blower, ed) discovered a directive on the enforcement division’s internal website ordering staff to destroy “any records obtained in connection” with closed MUIs. The directive appeared to violate federal law, which gives responsibility for maintaining and destroying all records to the National Archives and Records Administration. Over a decade earlier, in fact, the SEC had struck a deal with NARA stipulating that investigative records were to be maintained for 25 years – and that if any files were to be destroyed after that, the shredding was to be done by NARA, not the SEC.
This story, originating in Rolling Stone, has begun circulating in the financial press. Even with the shredding of important preliminary investigative information, it would be far-fetched to think that the SEC lacks the information and facts that could lead to enforcement action and possible criminal charges against white collar criminals implicated in the 2008 financial crisis.
Senator Chuck Grassley, Iowa, top Republican on the Senate Judiciary Committee, is on the case:
“From what I’ve seen, it looks as if the SEC might have sanctioned some level of case-related document destruction,” said Sen. Chuck Grassley, Republican of Iowa, in a letter to the agency’s chairman, Mary Schapiro.It doesn’t make sense that an agency responsible for investigations would want to get rid of potential evidence. If these charges are true, the agency needs to explain why it destroyed documents, how many documents it destroyed over what timeframe, and to what extent its actions were consistent with the law.”
It sure does.