U.S. Senator Charles Grassley asked the Securities and ExchangeCommission to answer allegations that the agency destroyed filesfrom initial investigations of firms including Goldman Sachs GroupInc., SAC Capital Advisors LP and Bernard Madoff InvestmentSecurities LLC.

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

“It doesn't make sense that an agency responsible forinvestigations would want to get rid of potential evidence,”Grassley said in a statement. “If these charges are true, theagency needs to explain why it destroyed documents, how manydocuments it destroyed over what timeframe, and to what extent itsactions were consistent with the law.”

Grassley said his request was prompted by a letter from DarcyFlynn, a 13-year SEC employee who claimed the agency destroyeddocuments including materials related to Goldman Sachs' trades ofAmerican International Group Inc. credit- default swaps in 2009,insider-trading probes of Deutsche Bank AG, Lehman BrothersHoldings Inc. and SAC Capital Advisors LP, and investigations ofpossible financial fraud at Wells Fargo & Co. and Bank ofAmerica Corp. in 2007 and 2008.

SEC's Understanding
Schapiro was asked todisclose whether the allegations were true and explain the SEC'sunderstanding of its legal obligations to maintain and archiverecords. Grassley is seeking a response by Aug. 31.

“As a general matter, not every document that comes into anagency'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 keeprecords of our MUI's and they're available to our investigators tolearn about previous work on matters that have been reviewed.”

Spokesmen Michael DuVally of Goldman Sachs, John Gallagher ofDeutsche Bank, Lawrence Grayson of Bank of America and JonathanGasthalter for SAC Capital declined to comment. TeriSchrettenbrunner of Wells Fargo declined immediate comment. A phonecall to the National Archives and Records Administration publicaffairs office wasn't returned.

“It would only really be of concern if there were no record ofan investigation having taken place,” said Peter Henning, a formerSEC attorney who is now a securities law professor at Wayne StateUniversity Law School in Detroit. “Investigations don't necessarilystart with a voluminous file — it may come from a newspaper story.The SEC drills a lot of dry holes.”

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