Grassley Questions SEC on Records

Senator asks about claims the agency destroyed files on financial firms.

U.S. Senator Charles Grassley asked the Securities and Exchange Commission to answer allegations that the agency destroyed files from initial investigations of firms including Goldman Sachs Group Inc., SAC Capital Advisors LP and Bernard Madoff Investment Securities LLC.

Grassley, the top Republican on the Senate Judiciary Committee, made the request in a letter to SEC Chairman Mary Schapiro dated yesterday, citing claims by an agency employee that more than 9,000 such files have been purged. The Iowa lawmaker asked Schapiro to explain whether the SEC routinely destroys documents related to so-called matters under investigation that are dropped in their initial phases.

“It doesn’t make sense that an agency responsible for investigations would want to get rid of potential evidence,” Grassley said in a statement. “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.”

Grassley said his request was prompted by a letter from Darcy Flynn, a 13-year SEC employee who claimed the agency destroyed documents including materials related to Goldman Sachs’ trades of American International Group Inc. credit- default swaps in 2009, insider-trading probes of Deutsche Bank AG, Lehman Brothers Holdings Inc. and SAC Capital Advisors LP, and investigations of possible financial fraud at Wells Fargo & Co. and Bank of America Corp. in 2007 and 2008.


SEC’s Understanding
Schapiro was asked to disclose whether the allegations were true and explain the SEC’s understanding of its legal obligations to maintain and archive records. Grassley is seeking a response by Aug. 31.

“As a general matter, not every document that comes into an agency’s possession in the course of its work must be retained,” John Nester, an SEC spokesman, said in a statement yesterday, declining to respond specifically to Grassley’s letter. “We do keep records of our MUI’s and they’re available to our investigators to learn about previous work on matters that have been reviewed.”

Spokesmen Michael DuVally of Goldman Sachs, John Gallagher of Deutsche Bank, Lawrence Grayson of Bank of America and Jonathan Gasthalter for SAC Capital declined to comment. Teri Schrettenbrunner of Wells Fargo declined immediate comment. A phone call to the National Archives and Records Administration public affairs office wasn’t returned.

“It would only really be of concern if there were no record of an investigation having taken place,” said Peter Henning, a former SEC attorney who is now a securities law professor at Wayne State University Law School in Detroit. “Investigations don’t necessarily start with a voluminous file -- it may come from a newspaper story. The SEC drills a lot of dry holes.”



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