“Is the SEC Covering Up Wall Street Crimes?” asks Matt Taibbi in Rolling Stone. Taibbi reports that the Securities and Exchange Commission has illegally destroyed thousands of preliminary investigation files, including early investigations of Ponzi schemer Bernie Madoff and probes of suspected fraudsters at Lehman Brothers on the eve of the institution’s collapse.

Felix Salmon of Reuters wrote, “Matt Taibbi’s 5,000-word exposé of the SEC’s document-shredding is a magnificent piece of journalism, and is the first and last place that you should look to understand what’s going on here.” 

Here’s Taibbi’s remarkable scoop in a nutshell: From 1993 to 2010, the SEC destroyed the records of preliminary investigations as soon as they were closed, even though the agency had a deal with the National Archives and Records Administration to keep those materials for at least 25 years. These files, known as “Matters Under Inquiry” or “MUIs,” are the first step towards a full-fledged investigation. An MUI may contain newspaper clippings, brokerage reports, and interview notes. Darcy Flynn, an 13-year SEC veteran who is now suing as a whistleblower, alleges that SEC officials lied about unauthorized document destruction and tried to cover it up. 

Taibbi argues that these files could have been crucial in identifying criminals before their misdeeds cost investors and taxpayers untold trillions of dollars.

Last week, NARA stated that the SEC has no authority to destroy MUIs and that NARA has been working with the SEC for a year to put a stop it.

The SEC maintains that it wasn’t required to keep MUIs in the first place. Even if federal law allowed the SEC to dispose of these records, the larger question would by why the agency would want to do something so reckless and shortsighted. Other law enforcement agencies don’t routinely trash their closed cases. These weren’t decades-old files, either. The SEC’s policy was to destroy MUIs as soon as they were closed.

The SEC’s defenders are claiming that these records were unimportant, but as Taibbi points out in an interview with Amy Goodman of Democracy Now!, SEC investigators like Darcy Flynn complained at the time that all the shredding was getting in the way of ongoing investigations.

The fact that the SEC was so determined to destroy evidence raises suspicions that the agency was more interested in coddling the financial sector than regulating it.

[Photo credit: dorena-wm, Creative Commons.]