SEC still destroying records illegally, whistleblower’s lawyer says

Posted Sept. 07, 2011, at 5:25 a.m.

WASHINGTON — A year after an internal whistleblower accused the Securities and Exchange Commission of improperly destroying records of dropped enforcement inquiries, the agency is still destroying records illegally, a lawyer for the whistleblower said in a letter Tuesday.

The whistleblower, SEC staff member Darcy Flynn, is under “standing orders to direct the destruction of records” that federal law requires the SEC to preserve, attorney Gary Aguirre wrote. Aguirre made the allegation in a letter to SEC Chairman Mary Schapiro and SEC Inspector General David Kotz and addressed copies to members of Congress.

“These are matters which require immediate attention,” Aguirre wrote.

His letter suggests that the destruction of documents has been wider than previously alleged.

The SEC should “put a freeze on the current practice of destroying documents after the completion of a formal or informal investigation” until the National Archives, which oversees the preservation of government records, has approved the process, Aguirre wrote.

Aguirre has argued that the destruction of SEC enforcement records could make it harder to hold the agency accountable when its staff decides not to fully investigate allegations of Wall Street wrongdoing or take action against alleged wrongdoers.

Documents still being destroyed are “internal work product” generated by the SEC’s enforcement staff, Aguirre wrote.

His latest allegation contrasts with an assurance the SEC gave the National Archives last year after Flynn told the National Archives that the agency was destroying investigative records without authorization.

SEC spokesman John Nester declined to comment Tuesday except to say that the SEC is reviewing Aguirre’s letter.

In an Aug. 27, 2010, letter, the SEC told the National Archives and Records Administration that it had instructed its staff to preserve the records in question, which are those pertaining to so-called MUIs, or “matters under inquiry,” an early stage in the investigative process, while it tried to sort out the issue.

“In connection with our review, on July 21, 2010, we directed our staff to retain all MUI records” until NARA had approved a timetable for their destruction, the SEC told the National Archives last year.

When Flynn’s original allegations were made public last month, an SEC spokesman confirmed that for years the agency had directed its staff to dispose of records obtained in connection with MUIs if the agency decided to close those inquiries without a full-fledged investigation.

But the SEC spokesman, Nester, has said the agency changed that policy last year.

In his letter Tuesday, Aguirre said the SEC chairman “may be responsible for some of the current violations.”

The SEC’s long-standing “Records Retention Schedule” says that records of preliminary investigations must be preserved for 25 years. Documents not listed in the schedule must be preserved until the National Archives approves a timetable for their destruction.

The standing order to destroy documents “puts Mr. Flynn on the horns of a dilemma,” Aguirre wrote.

Flynn has urged his supervisors to put a freeze on the destruction of records until the National Archives has determined how long they should be kept, Aguirre wrote.

An SEC spokesman did not immediately respond to a request for comment.

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