In a letter to SEC Chair Mary Schapiro, Senator Charles Grassley (R-Iowa) asked the Commission to respond to allegations that case-related document destruction might have compromised enforcement in cases involving suspicious activity at major banks and hedge funds. The inquiry from Senator Grassley, the Ranking Member on the Judiciary Committee, came after an agency whistleblower sent a letter to him describing the SEC’s alleged destruction of the federal records generated in at least 9,000 informal investigations.
The documents are said to support matters under inquiry (MUI), which is the first step in investigating a case that may or may not lead to a formal investigation. An MUI is the first step the SEC takes when credible information about a possible securities law violation is received. These records may contain critical information that could be extremely useful in piecing together complex cases, said the Senator, even if not immediately pursued.
After reviewing the whistleblower’s letter and supporting documents, Senator Grassley sent the letter to the SEC seeking a full accounting of any 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. If the allegations are correct, he noted, the intentional destruction of the 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.
By August 31, 2011, the Senator would like the SEC to answer the following questions: has the SEC routinely destroyed MUIs, and if so, why; is the SEC concerned that destroying these files may have harmed future investigations; is it possible for the Commission to retrieve any of this information; is it current SEC policy to destroy any files related to MUIs if the investigation does not progress to a formal order approved by the Commission; and what is the SEC’s understanding of its legal obligations to maintain and archive records related to MUIs and how is the SEC’s policy and practice consistent with those obligations.