Congress, Justice, Politics, Uncategorized

Securities and Exchange Commission Accused of Shredding Investigation Documents for Nearly Twenty Years

Submitted by Elaine Magliaro, Guest Blogger

Senator Charles Grassley (R-Iowa) has asked the Securities and Exchange Commission to respond to allegations made by a whistleblower that the agency had destroyed files from preliminary investigations of financial firms—including Goldman Sachs, SAC Capital Advisors, Deutsche Bank, AIG, and Bernie Madoff Investment Securities.

A Bloomberg article reported that Grassley’s request was prompted by a letter that he received from SEC attorney Darcy Flynn claiming that the SEC had “destroyed documents including materials related to Goldman Sachs’ trades of American International Group Inc. (AIG) credit- default swaps in 2009, insider-trading probes of Deutsche Bank AG (DBK), Lehman Brothers Holdings Inc. (LEHMQ) and SAC Capital Advisors LP, and investigations of possible financial fraud at Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC) in 2007 and 2008.”

Flynn, who has worked for the SEC for thirteen years, has had responsibility for helping to manage the commission’s records. He told Congress in July that since 1993 the agency has been systematically destroying files of preliminary investigations known as “Matters Under Inquiry” (MUIs). According to journalist Matt Taibbi, after Flynn alerted the National Archives and Records Administration about the document destruction, he reported that “senior staff at the SEC scrambled to hide the commission’s improprieties.”

Matt Taibbi reported the following in a recent Rolling Stone article Shredded Justice:
Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.

Also from the Taibbi article:
Much has been made in recent months of the government’s glaring failure to police Wall Street; to date, federal and state prosecutors have yet to put a single senior Wall Street executive behind bars for any of the many well-documented crimes related to the financial crisis. Indeed, Flynn’s accusations dovetail with a recent series of damaging critiques of the SEC made by reporters, watchdog groups and members of Congress, all of which seem to indicate that top federal regulators spend more time lunching, schmoozing and job-interviewing with Wall Street crooks than they do catching them. As one former SEC staffer describes it, the agency is now filled with so many Wall Street hotshots from oft-investigated banks that it has been “infected with the Goldman mindset from within.”

The destruction of records by the SEC, as outlined by Flynn, is something far more than an administrative accident or bureaucratic fuck-up. It’s a symptom of the agency’s terminal brain damage. Somewhere along the line, those at the SEC responsible for policing America’s banks fell and hit their head on a big pile of Wall Street’s money – a blow from which the agency has never recovered. “From what I’ve seen, it looks as if the SEC might have sanctioned some level of case-related document destruction,” says Sen. Chuck Grassley, the ranking Republican on the Senate Judiciary Committee, whose staff has interviewed Flynn. “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 time frame and to what extent its actions were consistent with the law.”

 
Matt Taibbi talking with Keith Olbermann about his SEC story on Countdown last week:

There’s a lot more to this story. I recommend reading the full text of Matt Taibbi’s Rolling Stone article:
Is the SEC Covering Up Wall Street Crimes?

Edited to Add: Thom Hartman and Matt Taibbi – Is the SEC covering up Wall Street crimes?

http://www.youtube.com/watch?v=NBPP7C3XkDc

Sources
Document Shredding: Why SEC’s Defense Won’t Fly (Rolling Stone)

S.E.C. Files Were Illegally Destroyed, Lawyer Says (New York Times)

Senate Investigators Met With SEC Lawyer On Document Destruction (NASDAQ)

Grassley Questions SEC Over Claims That Records Were Purged (Bloomberg)

Whistleblower: SEC improperly destroyed thousands of documents (CBS News)

48 thoughts on “Securities and Exchange Commission Accused of Shredding Investigation Documents for Nearly Twenty Years”

  1. “Whenever money is involved it’s always, at least in part, an inside job.”

    I posted that elsewhere about the billions missing in the Iraq flights and the SEC mess. Still true. No one can steal at the magnitude that we have seen in the last decade unless it’s an inside job. Holder isn’t a coward or stupid, he’s doing exactly the job he was hired and directed to do. He should get a merit pay increase and an SSP, Sustained Superior Performance award.

    And the shredding didn’t start with the last bunch of actors, it became ‘legal’ when Ollie North was caught purging the illegal arms trade/sales docs (Iran-Contra) and got off with a wrist slap and later a pardon. I say legal because the entire Regan Administration was in on violating the law and while a public play to give the appearance of official disdain for such acts (Treason IMO) no one actually had to pay any price worth paying Shredding documents? Meh. The Regan Revolution (and George H W Bush) took those laws off the books for all practical purposes.

    Iran-Contra justice:

    Summations
    1.Caspar Weinberger (R) Secretary of Defense, was indicted on two counts of perjury and one count of obstruction of justice on June 16, 1992. [1]. Weinberger received a pardon from George H. W. Bush on December 24, 1992 before he was tried.[77]

    2.William Casey (R) Head of the CIA. Thought to have conceived the plan, was stricken ill hours before he would testify. Reporter Bob Woodward records that Casey knew of and approved the plan.[78]

    3.Robert C. McFarlane (R) National Security Adviser, convicted of withholding evidence, but after a plea bargain was given only 2 years probation. Later pardoned by President George H. W. Bush[79]

    4.Elliott Abrams (R) Asst Sec of State, convicted of withholding evidence, but after a plea bargain was given only 2 years probation. Later pardoned by President George H. W. Bush[80] http://www.fas.org/irp/offdocs/walsh/summpros.htm.

    5.Alan D. Fiers Chief of the CIA’s Central American Task Force, convicted of withholding evidence and sentenced to one year probation. Later pardoned by President George H. W. Bush

    6.Clair George Chief of Covert Ops-CIA, convicted on 2 charges of perjury, but pardoned by President George H. W. Bush before sentencing.[81]

    7.Oliver North (R) convicted of accepting an illegal gratuity, obstruction of a congressional inquiry, and destruction of documents, but the ruling was overturned since he had been granted immunity.[82]

    8.Fawn Hall, Oliver North’s secretary was given immunity from prosecution on charges of conspiracy and destroying documents in exchange for her testimony.[83]

    9.John Poindexter National Security Advisor (R) convicted of 5 counts of conspiracy, obstruction of justice, perjury, defrauding the government, and the alteration and destruction of evidence. The Supreme Court overturned this ruling.[84]

    10.Duane Clarridge An ex-CIA senior official, he was indicted in November 1991 on 7 counts of perjury and false statements relating to a November 1985 shipment to Iran. Pardoned before trial by President George H. W. Bush.[85][86]

    11.Richard V. Secord Ex-major general in the Air Force who organized the Iran arms sales and Contra aid. He pleaded guilty in November 1989 to making false statements to Congress. Sentenced to two years of probation.[87][88]

    12.Albert Hakim A businessman, he pleaded guilty in November 1989 to supplementing the salary of North by buying a $13,800 fence for North with money from “the Enterprise”, which was a set of foreign companies Hakim used in Iran-Contra. In addition, Swiss company Lake Resources Inc., used for storing money from arms sales to Iran to give to the Contras, plead guilty to stealing government property.[89] Hakim was given two years of probation and a $5,000 fine, while Lake Resources Inc. was ordered to dissolve.[87][90]

    The Independent Counsel, Lawrence E. Walsh, chose not to re-try North or Poindexter. [91]In total, several dozen people were investigated by Walsh’s office.[92

  2. Gene,
    Unfortunately you are correct about Holder. We have video evidence of W. and Cheney admitting to criminal activity authorizing torture and Holder does nothing. The SEC has an illegal policy of destroying evidence and so far, Holder has done nothing. The CIA has been found by a court to have destroyed evidence of criminal activity and the judge’s attorneys fee sanction is the only result.

  3. Raff,

    I think Holder may be 100% stones free as evidenced by his track record prosecuting governmental crimes up to this point. If he’s willing to give war criminals a pass, a little destruction of evidence and obstruction isn’t going to phase him a bit.

  5. Elaine,

    Thanks for giving this the attention it deserves. I think Cenk’s term “Fundamentally Corrupt System” about sums it up. If we had a real lawyer running the DOJ, this would be the start of a criminal investigation. Please note I am not holding my breath on that one.

  7. Mike S.,

    “When I worked for NYC there were laws against destroying any document for seven years.”

    From the Taibbi article:
    Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency’s records – “including case files relating to preliminary investigations” – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term “Orwellian,” devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or “Matters Under Inquiry” – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission’s internal website. “After you have closed a MUI that has not become an investigation,” the site advised staffers, “you should dispose of any documents obtained in connection with the MUI.”

  9. There’s a Stasi-like apparatus already in place…, but it’s so difficult to believe that many don’t… or can’t… or turn a blind eye…

    “Something smells very wrong here at both the SEC and in respect to who really runs this country.” -Mike S.

    Indeed.

  10. Blouise 1, August 21, 2011 at 3:17 pm

    We are in deep, deep shit …

    ————————————-

    Oh, yeah… Very deep sh….

  11. When I worked for NYC there were laws against destroying any document for seven years. Regarding destruction of financial documents this is an interesting link related to the financial industry:

    http://www.hro.com/files/publications/docretpol.pdf

    Something smells very wrong here at both the SEC and in respect to who really runs this country.

  12. “So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank.” (from Elaine’s article … Matt Taibbi)

    ===========================================

    The Governor here in Ohio, Kasich, republican, worked for Lehman Brothers during that period:

    “In 2001, Kasich joined Lehman Brothers’ investment banking division in Columbus as a managing director.[30] He remained at the company until its bankruptcy filing and subsequent breakup in September 2008. For his work in 2007-2008, Lehman Brothers paid Kasich $182,692 for his 2008 salary, a $432,000 performance bonus for 2007, and $2,250 in other benefits.”

    Lots of republicans needed that evidence to disappear.

  15. Great story Elaine. What concerns me is that I think this is just the tip of the iceberg. If the CIA can get away with destroying evidence in an ongoing litigation case concerning torture, why shouldn’t the SEC be able to destroy its records?! Is anyone surprised that the SEC might be infected with insider individuals?

  18. Pingback: Securities and Exchange Commission Accused of Shredding Investigation Documents for Nearly Twenty Years (via JONATHAN TURLEY) « Living out of Eden

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