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SEC May Have Destroyed Documents, Republican Senator Says

The Securities and Exchange Commission (SEC) may have destroyed documents and compromised enforcement cases involving activity at large banks and hedge funds during the height of the financial crisis in 2008, according to allegations made by a lawmaker Wednesday.

“From what I’ve seen, it looks as if the SEC might have sanctioned some level of case-related document destruction,” said Sen. Chuck Grassley (R-Iowa) in a letter to the agency’s chairman, Mary Schapiro.

"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 time frame, and to what extent its actions were consistent with the law."

Agency staff "destroyed over 9,000 files" related to preliminary agency investigations, according to a letter sent in July to Grassley, the top Republican on the Senate Judiciary Committee, and obtained by MarketWatch.

The allegations were made by SEC enforcement attorney, Darcy Flynn, in a letter to Grassley. Flynn is a current employee, and according to the letter, received a bonus for his past year's work.

Flynn alleges the SEC destroyed files related to matters being examined in important cases such as Bernard Madoff and a $50 billion Ponzi scheme he operated as well as an investigation involving Goldman Sachs Group Inc. trading in American International Group credit-default swaps in 2009.

Flynn also alleged that the agency destroyed documents and information collected for preliminary investigations at Wells Fargo & Co., Bank of America Corp., Citigroup, Credit Suisse, Deutsche Bank and the now-bankrupt Lehman Brothers.

The letter goes into particular detail about Deutsche Bank, the former employer of current SEC enforcement chief Robert Khuzami as well as former enforcement chiefs Gary Lynch and Richard Walker.

The allegations that the SEC destroyed documents were first highlighted by Rolling Stone magazine in a report Wednesday.

An SEC spokesman did not return a request for comment. However, according to the Rolling Stone article, the SEC told the National Archives and Records Administration that the commission "is not aware of any specific instances of the destruction of records from any other MUI [Matters Under Investigation]."

The SEC added that it "cannot say with certainty that no such documents have been destroyed over the past 17 years."