According to SEC employee Darcy Flynn, the Securities and Exchange Commission is continuing to get rid of records from closed enforcement cases. If this is true, then the SEC may be breaking the law. Darcy Flynn has brought a whistleblower case over his allegations.<\/p>\n
Flynn has been an attorney with the SEC\u2019s enforcement division. The Washington Post quotes him as claiming that \u201cstanding orders to direct the destruction of records\u201d were given to him.<\/p>\n
Flynn contends that the agency has been getting rid of certain records for the last 17 years even though this violates federal law. He is also accusing the SEC of misleading government officials about the alleged misconduct. Flynn\u2019s lawyer says that with these records now destroyed it will be much more difficult to hold the SEC for any wrongdoing.<\/p>\n
Per the \u201cRecords Retention Schedule\u201d investigative case files have to be kept for 25 years. Other documents have to be kept until the National Archives say that they can be destroyed.<\/p>\n
In 2010, after Flynn put at an alert over this possible issue, the National Archives and Records Administration asked the SEC to explain. The SEC responded that it would preserve the records until the issue was resolved. Flynn\u2019s concerns at the time were focused on \u201cmatters under inquiry\u201d documents. MUIs are preliminary investigative records.<\/p>\n
Now, however, Flynn is alleging that it isn\u2019t just MUIs that the SEC is wrongfully destroying. He is claiming that documents from formal investigations, including closed probes, are also being eliminated. Flynn believes that not only are these alleged actions impairing the regulator\u2019s ability to resolve certain securities fraud cases, but they are also adversely affecting its ability to regulate any influence peddling by attorneys that have left the SEC to go work at hedge funds, banks, and other firms under its oversight.<\/p>\n
In July 2011, Flynn\u2019s attorney reported the allegations his client made to Sen. Charles E. Grassley (R-Iowa), who has since gone public with them. The lawyer also invoked whistleblower protection on his client\u2019s behalf.<\/p>\n
<strong>Per the letter to Grassley, the SEC is accused of:<\/em><\/p>\n \u2022 Ordering the improper destruction documents related to \u201cmatters of inquiry\u201d when the initial probe didn\u2019t lead to an official investigation and files were then closed.<\/p>\n \u2022 Retaining an enforcement division policy that leads to 75% of documents obtained in formal investigations and generated by the staff getting tossed out when all but 5% of that should be kept on record.<\/p>\n \u2022 Giving staff permission to get rid of internal emails after investigations are concluded.<\/p>\n \u2022 Destroying the majority of most staff-generated case documents unless the paperwork falls under a category called \u2018formal memoranda.\u201d<\/p>\n Last month, the SEC wrote a letter to the National Archives and Records Administration saying staff had been ordered to keep \u201call MUI records\u201d and acknowledged that this new protocol is a recent change in policy.<\/p>\n This isn\u2019t the first time that Flynn has acted as a whistleblower. He received about $2.7 million over alleged Medicare fraud in 1993. At the time, Flynn was an insurance-claims auditor. In that whistleblower complaint, he claimed under the False Claims act that the insurer turned in false records related to audits of Medicare payments to hospitals and, as a result, cheated the Medicare program. Without admitting\/denying wrongdoing, Medicare consented to pay the government $27.6 million to settle the claims.<\/p>\n SEC still destroying records illegally, whistleblower says<\/a>, Washington Post, September 6, 2011<\/p>\n New Bill Calls for Whistleblowers to Notify Financial Firms of Alleged Violations, Institutional Investors Securities Blog, July 23, 2011<\/p>\n
\nMore Blog Posts:<\/strong>
\nWhistleblowers to Be Awarded from $453 Million SEC Fund<\/a>, Institutional Investors Securities Blog, July 28, 2011<\/p>\n