Who Fed Documents to the SEC Dog?

Who Authorized Document Destruction at the SEC?

By MICHAEL SMALLBERG and PAUL THACKER

Was the SEC's alleged document destruction debacle the result of nefarious behavior, or a simple case of incompetence?

DealBook columnist Peter J. Henning argued yesterday that the shredding of thousands of pages of documents "looks more like corner cutting to avoid cumbersome federal regulations." But in a letter sent last week to the National Archives and Records Administration (NARA) and the Securities and Exchange Commission (SEC) Office of Inspector General (OIG), whistleblower attorney Gary Aguirre suggests there may be more to it than that, and raises new questions about the SEC's alleged document destruction policy. One of those key questions, which so far seems to have eluded Henning and other close observers, is this: who at the SEC authorized the policy?

According to Aguirre, NARA and the SEC OIG may “not be getting an accurate picture” of the SEC’s alleged violations. Last week, NARA stated it is “concerned that the SEC has been slow in creating records schedules...that will ultimately determine how long these MUI records need to be retained.” In other words, the SEC simply failed to come to an agreement with NARA on how long the MUI files had to be preserved.

This in itself would be a serious problem, since the SEC did not have the authority to destroy the MUI records without approval from NARA, according to the Federal Records Act. But Aguirre’s letter makes the case that the SEC’s destruction of the MUI files was actually a violation of an existing arrangement with NARA. Aguirre argues that this is not an insignificant distinction:

Either violation is serious and could subject the violator to criminal sanctions. Further, the manner in which the statute was violated may point to the responsibility of specific officials within the SEC. It is therefore even more important that NARA carefully parse the facts to determine exactly how the SEC decided to destroy thousands of files containing federal records. Otherwise, there can be no accountability.

Aguirre points to an existing agreement approved by NARA in 1992 that requires SEC “Investigative Case Files...including case files relating to preliminary investigations” to be retained for 25 years (emphasis added). Which raises a critical question: are “case files relating to preliminary investigations” the same thing as the MUI files?

Aguirre argues that “preliminary investigations” and “MUIs” are just different terms used to describe the same initial investigative process. Indeed, the SEC itself uses different terms to describe this initial stage: for instance, while MUIs are referenced throughout the SEC’s Enforcement Manual, SEC regulations refer to the same stage only as a “preliminary investigation.”

“The real issue that NARA should be investigating,” Aguirre wrote, “is who at the SEC came up with the idea of attributing a new name to a preliminary investigation and then using that device to destroy thousands of files of preliminary investigations.”

Aguirre followed up with a letter sent yesterday to SEC Chairman Mary Schapiro, in which he raised concerns that “the truth may be a victim” of ongoing discussions between the SEC and NARA on the alleged shredding of the MUI records. He asked Schapiro to inform NARA that there is no meaningful distinction between “preliminary investigations” and the MUI files.

Michael Smallberg and Paul Thacker are POGO Investigators.