Tags: sec | wall street | probe

SEC Said to Have Destroyed Files on Probes of Banks, Hedge Funds

Wednesday, 17 Aug 2011 07:53 PM

A Securities and Exchange Commission whistleblower says the regulator destroyed files over the past several years related to inquiries into possible suspicious activities at banks and hedge funds, the Wall Street Journal reports.

SEC lawyer Darcy Flynn says in a letter to Sen. Charles Grassley (R., Iowa) that the organization has destroyed 9,000 files since 1993 regarding securities-law violations at institutions including Goldman Sachs Group, Lehman Brothers Holdings and hedge fund SAC Capital.

Grassley has reached out to SEC Chairman Mary Schapiro, asking her to respond to several questions about Flynn's claims.

"From what I've seen, it looks as if the SEC might have sanctioned some level of case-related document destruction," Grassley says in a statement, the Journal reports. "It doesn't make sense that an agency responsible for investigations would want to get rid of potential evidence."

The SEC is looking into the matter and will issue a report next month, the Journal adds.

By law, federal agencies must follow set standards when it comes to handling — and destroying — documents and other information.

Rolling Stone writer Matt Taibbi, who reported early on Flynn's allegations, questions whether SEC regulators are getting too close to the people and organizations they are supposed to regulate.

"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," Taibbi writes.

"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."

Not only is the SEC too close to the financial community, it's run by the same people, Taibbi says: "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.'"

Grassley, meanwhile, wants answers. The senator is requesting a "full accounting" of the SEC's document destruction policies, including whether the allegations are correct that the SEC destroyed documents related to Bernard Madoff, Goldman Sachs, Wells Fargo, Bank of America, Deutsche Bank, Lehman Brothers, and SAC Capital, CNBC reports.

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