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New Question for Securities Fraud Agency: Why Shred Investigative Files?
“Why Isn’t Wall Street in Jail?” That was the headline of an article blaming the financial crisis on a culture of greed in Manhattan combined with weak enforcement in Washington. The headline is exaggerated – there are law-abiding people on Wall Street, and the economy relies on the securities markets – but the critics of the enforcement system have valid points.
The Securities and Exchange Commission is the federal agency charged with protecting investors against securities fraud. Anyone with a retirement account or a home mortgage probably has ties to Wall Street, so it’s important for the commission to do its job.
Unfortunately, the agency has problems. A revolving door between agency staff members and the investment firms and banks they oversee has led to concerns of coziness and the soft-pedaling of potential criminal cases. The idea is enforcement agents don’t want to build cases against the firms where they might want to get hired for high salaries.
The agency was embarrassed after ignoring tips about Bernard Madoff, now serving a 150-year prison sentence but only after having defrauded thousands of victims, including charities, of billions of dollars.
Now, a new problem is in the news. An enforcement lawyer at the agency wrote to me, at risk to his career for alienating his bosses, and outlined what he said was the agency’s destruction of at least 9,000 files between 1993 and 2010. These documents related to initial inquiries into possible wrongdoing on Wall Street.
The lawyer said the files were destroyed as a routine matter of internal policy. He said the destruction was illegal, in violation of laws that federal agencies must keep federal records. He also said the document-shredding might have compromised enforcement cases against some of the biggest names in investing, including Madoff, Goldman Sachs, Wells Fargo, Bank of America, Deutsche Bank, Lehman Brothers, and the SAC Capital hedge fund.
After looking at the whistleblower’s materials, I understood his concerns. These allegations are troubling. It doesn’t make sense that an agency responsible for investigations would want to get rid of potential evidence. If these charges are true, the agency needs to explain why it destroyed documents, how many documents it destroyed over what timeframe, and to what extent its actions were consistent with the law. I wrote to the chairman and asked for a full accounting.
The chief archivist of the United States also is weighing in. A National Archives statement said the Securities and Exchange Commission “did not have authority to dispose of” the records in question under federal law.
The document destruction might have continued if not for the whistleblower’s action to try to stop it. The archivist’s statement underscores the need for the agency to answer my questions and for the Securities and Exchange Commission’s inspector general to provide an independent review of the damage done and the extent to which the agency violated the law. Document destruction should not occur to the detriment of the investing public, and in violation of the law.
Friday, Aug. 19, 2011
“Why Isn’t Wall Street in Jail?” That was the headline of an article blaming the financial crisis on a culture of greed in Manhattan combined with weak enforcement in Washington. The headline is exaggerated – there are law-abiding people on Wall Street, and the economy relies on the securities markets – but the critics of the enforcement system have valid points.
The Securities and Exchange Commission is the federal agency charged with protecting investors against securities fraud. Anyone with a retirement account or a home mortgage probably has ties to Wall Street, so it’s important for the commission to do its job.
Unfortunately, the agency has problems. A revolving door between agency staff members and the investment firms and banks they oversee has led to concerns of coziness and the soft-pedaling of potential criminal cases. The idea is enforcement agents don’t want to build cases against the firms where they might want to get hired for high salaries.
The agency was embarrassed after ignoring tips about Bernard Madoff, now serving a 150-year prison sentence but only after having defrauded thousands of victims, including charities, of billions of dollars.
Now, a new problem is in the news. An enforcement lawyer at the agency wrote to me, at risk to his career for alienating his bosses, and outlined what he said was the agency’s destruction of at least 9,000 files between 1993 and 2010. These documents related to initial inquiries into possible wrongdoing on Wall Street.
The lawyer said the files were destroyed as a routine matter of internal policy. He said the destruction was illegal, in violation of laws that federal agencies must keep federal records. He also said the document-shredding might have compromised enforcement cases against some of the biggest names in investing, including Madoff, Goldman Sachs, Wells Fargo, Bank of America, Deutsche Bank, Lehman Brothers, and the SAC Capital hedge fund.
After looking at the whistleblower’s materials, I understood his concerns. These allegations are troubling. It doesn’t make sense that an agency responsible for investigations would want to get rid of potential evidence. If these charges are true, the agency needs to explain why it destroyed documents, how many documents it destroyed over what timeframe, and to what extent its actions were consistent with the law. I wrote to the chairman and asked for a full accounting.
The chief archivist of the United States also is weighing in. A National Archives statement said the Securities and Exchange Commission “did not have authority to dispose of” the records in question under federal law.
The document destruction might have continued if not for the whistleblower’s action to try to stop it. The archivist’s statement underscores the need for the agency to answer my questions and for the Securities and Exchange Commission’s inspector general to provide an independent review of the damage done and the extent to which the agency violated the law. Document destruction should not occur to the detriment of the investing public, and in violation of the law.
Friday, Aug. 19, 2011