August 22, 2011
The SEC's Destruction of Documents
I’m back from an extended vacation and ready to begin blogging again. (By the way, if you’re a backpacker and haven’t experienced Wyoming's Wind River range, it’s definitely worth it. Just avoid the killer hike known as Porcupine Pass.)
Regular readers of this blog know I’m not a big fan of the SEC, but I think the recent brouhaha about the SEC’s destruction of documents is overblown. For those of you who haven’t seen the stories, the allegation is that the SEC routinely destroyed documents related to preliminary inquiries that did not turn into formal investigations. You can read the stories here, here, and here.
As J. Robert Brown, Jr. explains, the problem is that a government agency may not destroy documents except pursuant to a disposition schedule approved by the National Archives and Record Administration. Since the NARA had not approved a disposition schedule for these documents, their destruction violated the law.
The SEC’s destruction of these documents was careless and stupid, and I agree with Steve Bainbridge’s claim that this is another instance of the SEC itself being unable to comply with the type of rules it expects those it regulates to follow. But I see nothing venal in the SEC’s actions. The New York Times tries to tie it to the revolving door at the SEC and former staffers representing clients before the SEC. I think the suggestion that this document destruction facilitated the ability of SEC investigators to “do undetected favors for former colleagues and their clients by quashing investigations” is just silly.
"Nothing venal" because they "forgot" the rules? Please!
There are too many smart people at the Commission for them not to have thought of this.
But, as usual, since it's the government, someone will merely be promoted and others will get good service awards. Of course, Putin did the same thing after the first farcical Khodorkovsky trial
Posted by: Bruce W Bean | Aug 23, 2011 6:11:01 AM
You really find it silly? The SEC has a long history, under both Republican and Democratic leadership, of serving as the place where scandal and fraud at major companies and major banks is "put to bed" through slap-on-the-wrist nolo contendere settlements.
Here, the eager young SEC lawyer finds the goods on a major bank or fund manager and shows them to his superior. The superior not only passes on pursuing it any further but indeed destroys the documents. Name me any law-enforcement entity in the world - any police department, regulatory body or prosecutor's office anywhere on the face of this earth - where that occurs?
The SEC vigorously pursues small firms (which account for nearly all, in percentage terms, of its enforcement actions) while settling, diverting, downplaying or simply thwarting enforcement against major investments banks, companies and investment managers. Again, these large firms account for 95% of securities transactions but are the subject of only 3-5% of the SEC's enforcement activity. This document destruction policy was just another item in the SEC's bag of tricks to achieve such thwarting and quashing of incipient investigations against those whom it was uncomfortable investigating.
In practice and reality, it would perhaps not go too far to say that the primary effect of the SEC is to act as a protection mechanism for the oligopolist interests of the major investment banks, and this latest scandal is just another demonstration of that fact because it shows to what extent the SEC takes pains to CONTROL who and what its lawyers investigate. This is the clearest example of these problems since the SEC's settlement with BofA over its lies regarding Merrill Lynch was found so plainly collusive by a federal judge that he had to overturn it.
What is the last time you have seen a prosecutor's office behaving in such a manner?
Posted by: Jillian | Aug 23, 2011 5:44:08 PM