SEC Lawyer Says Agency Illegally Destroyed Documents

According to allegations made by a Securities and Exchange Commission lawyer, released by Congressional investigators, the organization has illegally destroyed documents related to at least 9,000 preliminary inquiries over the past two decades.

Rolling Stone reports the allegedly deleted documents involved Bernard Madoff, as well as financial institutions that played parts in 2008’s financial meltdown, including AIG, Citigroup, Deutsche Bank, Bank of America, Goldman Sachs and Lehman Brothers. The SEC destroyed the documents under a policy that mandated the disposal of records from preliminary inquiries that did not become formal investigations. The SEC reportedly did away with the policy last year.

The lawyer cannot speak to the press because he’s a federally protected whistleblower. Rolling Stone says he gave a presentation to three congressional committees this summer that indicates the SEC was “conquered” by those it was in charge of investigating. An SEC spokesman said the agency is not required to keep all documents.

Is the SEC Covering Up Wall Street Crimes? [Rolling Stone via The New York Times]


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  1. Fineous K. Douchenstein says:

    This doesn’t surprise me at all. The penalties for illegally destroying the documents will be far less than the penalties that would come from having kept them intact.

  2. u1itn0w2day says:

    Business as usual, nothing new move along, can’t have any implicating material laying around.

  3. sirwired says:

    “Regulatory Capture” is a tough problem to prevent if you are also trying to avoid regulatory overreach.

    If a regulatory agency hires employees that have had no previous employment/experience in the industry they are regulating, the end result is regulations that “seemed like a good idea at the time”, but prove to be unworkable in the real world, and fodder for really nasty political fights.

    If they try and prevent this by hiring those with experience, some “chumminess” with former contacts and coworkers is virtually inevitable.

    It’s a tricky problem with no good solution.

    • darcmosch says:


    • Thalia says:

      Of course there is a trivial solution: If you’ve worked at a regulatory agency, you may not work for a company that lobbies that same agency for a period of time, say two years. That way, the revolving door is much reduced. You can’t prevent it entirely, but you can be sure that the guy stopping the investigation today won’t be employed by the target tomorrow.

      Oh, and if you are found to have done anything like stopping an investigation in exchange for payola, it’s time for a criminal record, and a wiping out of your pension.

      Hit them where it hurts.

  4. Loias supports harsher punishments against corporations says:

    People came to official overseers like the SEC with information on Madoff and it was ignored. I doubt they would want that to be on the record.

  5. Blueskylaw says:

    Doesn’t everybody do Spring cleaning?

  6. dolemite says:

    Well, you put ex-lobbyists and CEOs in charge of the agencies in charge of monitoring their “former” industries, and this is surprising?

  7. truthandjustice says:

    America’s distress Call — SOS

    I am tempted to fly my American flag, upside down — a universally and historically recognized SOS signal. And urge all others to do likewise. Wake up America! Pay attention America. If we don’t speak out, we are part of the problem! The silent majority can no longer be silent, uninformed, or misinformed. And news flash to the alleged Tea Partiers — you’re being played and you are too gullible to even figure it out!

    These are incredibly distressing days for America. Our politicians, of BOTH parties, have clearly sold out the interests of the vast majority of Americans for their own self-interests. The debt-talk debacles PROVE IT. Our supposed representational government has FAILED US. True, conscientious, ethical leadership is absent. Infinite resources aplenty for futile wars and wealth redistribution to the obscenely wealthy, but drastically diminishing resources and opportunity for the vast majority of Americans, who are just trying to eek out a reasonable, modest living.

    These are NOT the principles America was founded upon. This is NOT the America my father fought and died for. This is NOT the America, that elicits pride. America, we are in serious trouble, if the bulk of Americans are even paying attention. On 9/11/01, foreign terrorists hijacked planes. For the past two decades (at least), domestic, plutocratic, economic terrorists have been hijacking our country, our institutions, and our treasury. I am ashamed and distressed — and so too should ALL of America.

    American human and physical resources are being plundered and pillaged, and once the plutocrats and corporatocracies have bankrupted the USA, they will leave for greener shores and leave the remaining 95% of us to cannibalize off of whatever detritus is left.

    America = Epic FAIL

    • Coffee says:

      It’s sad that in reading your comment, I don’t see much that I disagree with. It’s even sadder that, given the overwhelming mountain of historical evidence, there are still people out there who believe that wide-scale deregulation will ultimately lead our country to a better place. The propaganda is working; the people who are unflinching and unwavering in their opposition when it comes to reforming the tax system or creating bipartisan legislation are the same people who flinch and make concessions every time an American company threatens to move oversees, the same people who propose new legislation whenever the old laws don’t suit corporate America.

      Makes me sick.

      • Kate says:

        Well when rich people get richer, they get more powerful and historically, it’s been the foolish and the uneducated who give them their power, til it’s too late and become totally powerless themselves.

        Eventually it leads to the bottommost rise up over the abuse and put in communism to make it fairer. So in a way, these guys are working hard to have the communists take over the world.

      • pythonspam says:

        Easy enough to fix:
        1) Make new laws
        2) Send copy to businesses after the fact
        3) Tell businesses to comply or GTFO
        3b) Remind them that GTFO includes not being able to sell to american consumers
        5) Prosper!!

  8. eccsame says:

    I’m pretty sure that most government agencies do the same thing. These were initial inquiries that never became investigations, so why keep the files?

    That would be like your local police station responding to a call of a disturbance. When they get there, there is no disturbance and they get back in their car and leave. Should the police keep a record of that initial investigation on file forever?

    I think the bigger problem here is that the SEC launched inquiries into these organizations and were so crappy at their jobs that they found nothing. For all we know, the destroyed Madoff documents probably said something like “Madoff seems like a swell guy. Nothing to see here.” I doubt they were incriminating or else they would have become “formal investigations”

    • ARP says:

      Unless, the documents uncovered significant wrongdoing by companies and were ignored. If you destroy them, you can claim ignorance of such wrongdoing and wouldn’t have to enforce regulations against your golfing buddies.

    • fadetoblack says:

      According to the article, they have to keep the files because it is federal law that they be kept for 25 years. And the exact reason they should be kept is that it could help later investigators to know if there were similar cases pursued that indicate a pattern and could help uncover concealed illegal activity.

      As the article and other recent whistleblower cases point out, some of the investigations weren’t ended because of insufficient evidence – more than once, SEC supervisors stepped in and killed cases, then soon after took jobs at the company that had been investigated.

    • Loias supports harsher punishments against corporations says:

      Actually files of non-incident reports are kept on file at the police station.

      For the same reason evidence is kept forever. Because the worse thing that could happen is potentially important information or evidence is destroyed before discovering it could have been used to prosecute a criminal.

  9. hansolo247 says:

    And to think there are people who want to give agencies like this more power!

    • fadetoblack says:

      Well, underfunding the enforcement divisions of agencies like the SEC have allowed the bad guys to act with increasing impunity. Most of us who care about fair markets and capitalism do think we need better referees who are more independent of the companies they are supposed to be overseeing, because as we are seeing the risk of being caught hardly approaches the enormous rewards available to people trading with inside information, for example.