Sen. Chuck Grassley (R-Iowa) is looking into whether the Securities and Exchange Commission is engaged in the widespread destruction of files tied to matters once under investigation, as a department whistleblower claims.

In a letter sent to SEC Chairman Mary Schapiro on Wednesday, Grassley says an SEC attorney, Darcy Flynn, has come forward and claimed the agency destroyed evidence from preliminary investigations involving some of Wall Street’s biggest firms, and even convicted Ponzi schemer Bernard Madoff.

{mosads}In addition, some of the matters under investigation (MUI) that concluded with destroyed documents involved some of the biggest events of the financial crisis, such as the trading of AIG credit default swaps by Goldman Sachs as well as insider trading investigations at a variety of banks.

If a preliminary inquiry based on credible information did not yield a full-blown investigation, the SEC’s policy was to destroy the files, according to Flynn.

He added that more than 9,000 files had been destroyed, which Grassley worries could have contained information that would have proven valuable in the future.

“These records may contain critical information that could be extremely useful in piecing together complex cases, even if not immediately pursued,” Grassley wrote. “If Mr. Flynn’s allegations are correct, the intentional destruction of at least 9,000 MUIs would appear to greatly handicap the SEC’s ability to create patterns in complex cases and calls into question the SEC’s ability to properly retain and catalog documents.”

Grassley asked Schapiro to detail the SEC’s document retention policies, whether it is possible to retrieve destroyed documents, and if Flynn’s claims are accurate. He also asks how the SEC understands its legal obligations to maintain and archive records related to these MUIs, and whether its practices are consistent with those.

The SEC has come under fire since the financial crisis for failing to sniff out malfeasance on Wall Street beforehand, with Madoff emerging as a rallying flag for critics. However, it has also been handed substantial new responsibilities under the Dodd-Frank financial reform law, which the agency is still at work implementing.

An SEC spokesperson declined to comment on the letter in advance of an official response, but noted that the agency keeps records of its MUIs, but it is not required to keep every document.

This post updated at 4:15 pm.

Tags Chuck Grassley

The Hill has removed its comment section, as there are many other forums for readers to participate in the conversation. We invite you to join the discussion on Facebook and Twitter.

Most Popular

Load more


See all Video