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SEC Hit With Data Destruction Complaint 148

DMandPenfold writes "The Securities and Exchange Commission (SEC), the US financial regulator, has been accused of destroying thousands of data files on high profile inquiries including an early-stage investigation into convicted Ponzi scheme fraudster Bernard Madoff. The allegations, raised by former SEC employee Darcy Flynn, have prompted the US Senate Judiciary Committee to write to SEC chairwoman Mary Schapiro to demand an immediate explanation. The SEC exists to set a tough example on corporate governance, and it fines banks heavily for both lax practice and deliberate malpractice. Questions over any involvement it may have in sensitive document destruction are not likely to sit comfortably with some in the industry. The SEC insists it has kept records in accordance with the law on its computer system."
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SEC Hit With Data Destruction Complaint

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  • Anyone surprised? (Score:3, Interesting)

    by squidflakes ( 905524 ) on Thursday August 25, 2011 @11:32AM (#37207020) Homepage

    The agency that is supposed to keep the banks from committing the kinds of fraud they have been blatantly committing in the last 10 years or so has been wiping data. Ooops!

    • I doubt there was much in the way of malicious activity. Based on my experience with records management rules at an "old-school institution", my guess is that the SEC has a very detailed retention policy regarding how to handle "documents subject to litigation" and an entirely different detailed policy on "electronic data retention" that is more focused on freeing up server space than the preservation or data.

      My other guess is that the people in charge of policy enforcement, lawyers and records manager-t
      • I can only point to personal experience here, but I've been in IT in companies on the receiving end of SEC audits. They may have been rendered toothless, but they know how to retain data, preserve data, and recover data when Joe Sysadmin "accidentally" complies with an e-mail or document deletion policy.

        I would have a hard time believing that the records destroyed, especially when pertaining to high profile cases, weren't done maliciously.

        However, no proof, so there we go.

        • Similar to the missing emails from the Bush administration.

          Basically, someone has blown a whistle and now everyone is looking. Nothing will come of this.

      • by dave562 ( 969951 )

        I doubt there was much in the way of malicious activity.

        You're way off. Read the original article that details the specifics. In short, the SEC was required by law to maintain the records that they destroyed and they failed to do so. Then after destroying the records, they came up with some weasel word definition of what a "record" really is.. a la Bill Clinton. []

        • You're way off.

          Ok, ok, I read (parts of) YFA...i'm at work. I'm happy to bow to your viewpoint after I've had more time to read. My summary opinion: Malice would involve these people choosing to destroy materials that they wouldn't normally destroy given the same fact pattern.

          The policy the SEC worked out with the Archives may be stupid (even illegal), but I'd still bet that the people involved were doing the same thing they'd done with every other "matter under investigation" that was ever dropped. Unl

      • by sjames ( 1099 ) on Thursday August 25, 2011 @03:17PM (#37210670) Homepage Journal

        Actually, they have a mandate to retain all of those documents for 25 years with no exceptions. They have shredded documents exactly matching the types described in their agreement with the NARA.

        The more you dig, the harder it is to not see malice. The upper managers at the SEC regularly come from and then return to the boards of exactly the institutions they are regulating. Those lateral moves often happen after a shred-fest.

      • I doubt there was much in the way of malicious activity

        Let me get this straight, the early investigations of Madoff were done by people who were connected to him. The records of those (obviously flawed) investigations have been destroyed and you don't think it was deliberate? I have a bridge to sell you!

    • Hopefully, the bigger whoops will come when someone decides to look over the (offsite?) data backups.

  • by paulsnx2 ( 453081 ) on Thursday August 25, 2011 @11:33AM (#37207036)
    ... That is what has happened to every other whistle blower under this administration. And the worse the corruption exposed, the worse the sentence. If the SEC is guilty of total fraud sheltering billions of dollars in Wall Street theft, then expect the DOJ to go for the death sentence for Darcy Flynn.
    • . If the SEC is guilty of total fraud sheltering billions of dollars in Wall Street theft, then expect the DOJ to go for the death sentence for Darcy Flynn.

      Why on earth would you expect that?

      Hell, there's been VERY little done to expose and try to get to the bottom of the 'Fast and Furious' scandal...which looks like WAS known about by Eric Holder, but why is there no investigation into this major SNAFU where numerous Mexicans AND US law enforcement agents and civilians have been killed by this royal fuck

      • by sjames ( 1099 )

        Flynn is the whistle blower. We seem to have a policy of punishing any sort of whistle blowing these days even if we have to fabricate evidence to do so.

        • Flynn is the whistle blower. We seem to have a policy of punishing any sort of whistle blowing these days even if we have to fabricate evidence to do so.

          Any admission of wrong-doing is seen to threaten the power structure.

          From my perspective it would actually strengthen it, but, hey, I'm not a power broker playing by ape rules.

          • by sjames ( 1099 )

            Proper handling of whistle blowing also strengthens the legitimacy of the power structure. In a democracy (or a democratic republic) the government MUST be willing to root out corruption and so should see whistle blowing as a distinguished service to the country.

            Punishing them demonstrates that those in power believe they are in a special class above the people.

    • And the worse the corruption exposed, the worse the sentence

      Not just retroactively - cover-ups can be a bitch too. I was told the other day that most of the evidence for the Enron scandal was in Building 7. Haven't verified that alleged fact for myself, but I didn't shrink back in horror and disbelief either.

  • by elrous0 ( 869638 ) * on Thursday August 25, 2011 @11:38AM (#37207088)

    All those greedy bastards who invested with Madoff and were pissed that all they would get back was their *actual* investment have been whining for months about not getting their fictional 10%-a-year interest back too. Now they'll probably use stuff like this to sue the SEC and recoup their fictional gains out of all of *our* pockets. Just great.

    • RE: US Ponzi (Score:2, Informative)

      by Technician ( 215283 )

      The US government is running the exact same ponzi scheme. With a good credit rating and increasing debt attracting investors in unsustainable deficit spending, Standard and Poor called it in the last negotiations to raise the limit. It is a risky investment even though the past payment record has been perfect. Obama has declared the rating invalid. This is like Enron declaring a downgrade invalid.

      • Re: US Ponzi (Score:5, Insightful)

        by RingDev ( 879105 ) on Thursday August 25, 2011 @12:04PM (#37207490) Homepage Journal

        S&P called it because a political party in the US was prepaired to default on our debt.

        If violating our Constitution had not been presented as a "valid" option by the Tea Party, the S&P rating never would have changed.

        As soon as the Tea Party forced the issue and started pissing on the very document they claim to love and defend, the only way to prevent the down grade was to create a meaningful adjustment of spending and revenue. And again, thanks to the Tea Party, the outcome of that came up short.

        And it isn't a "Risky investment". It's AA rated. It puts us on par with utility companies and other extremely stable business sectors. The point of AAA ratings is that they are for entities that are legally require to pay out on debts. The US is still constitutionally required to pay out on debts, so by the standard we should still be AAA. But far right ideologs like Bachman and Perry keep spewing crap that makes the world think that we could actually default dispite our constitution.

        Some of the blaim is Obama's with out a doubt, he's been playing the gentle leader roll ever since the GOP coined the "Ramming it down our throats" talking point in the year long insurance reform debate.

        • Some of the blaim is Obama's with out a doubt, he's been playing the gentle leader roll ever since the GOP coined the "Ramming it down our throats" talking point in the year long insurance reform debate.

          Obama is absolutely complicit. Just look at his actions, not his words, which are meaningless. Obama has gone along with everything the Republicans wanted, so that means he must favor those things. He just says different things to make you think otherwise. The man is a liar, and this should be no surpris

          • so that means he must favor those things

            It is very difficult to know what politicians really favour, because politics is the art of spin and backroom deals. It would be interesting to see what Obama got in return for going along with the Republicans, or if he got screwed because he was the weaker negotiator. Or he could really be a Republican trojan horse.

            Now, we /did/ see Obama go up against the healthcare companies. So we know he believes in something.

            • Now, we /did/ see Obama go up against the healthcare companies. So we know he believes in something.

              He did? The results don't show much. We got a healthcare "reform" that didn't really reform anything. In exchange for the bit about not denying people for pre-existing conditions (which still hasn't taken effect IIRC), they got tons of concessions including the requirement that people buy insurance, which is plainly unconstitutional. You can't require people to buy stuff by law; if the government deems so

          • by Chirs ( 87576 )

            In this most recent issue the Republicans refused to compromise, so the choices were basically go along with the Republicans or else cut government spending drastically and immediately so they could make the debt payments.

            Personally I would have loved to see him stand up to the Republicans and then make the debt payments from the defence budget.

            • Personally I would have loved to see him stand up to the Republicans and then make the debt payments from the defence budget.

              Right, so why didn't he?

        • Um... so you wrote that with the implied assumption that that USA will in fact pay back those debts... something it has failed to do for the last 200 years or so. I'm just curious, you see, I'm not a math guy, so I'm just curious where you think the money to pay those debts is going to come from? Also while answering that question, I want you to find the GDP of the USA and compare it, on a graph, to the deficit go back at least 10 years.

          What you will find, is that the USA economy is built on the princi
          • by RingDev ( 879105 )

            something it has failed to do for the last 200 years or so.

            So far as I know, other than a scare back in the 1970's, the US has never failed to pay off a debt.

            The US has not been "debt free" in 200 years. That is in no way the same as "failed to pay offdebts". Not even close! Heck, I haven't been debt free in 15 years, but every debt I've ever had has been paid off or is currently paid ahead of schedule.

            Furthermore, the budget in effect right now, assumes that the money to pay off the debt is raises will come in a future generation/budget. It won't. It never has, and short of massive cuts, it never will

            It came damn close. Clinton got the country back into surplus mode and Bush COULD have started paying down the debt in 2001.

            Yeah, it's going to take fiscal responsib

            • by Thing 1 ( 178996 )

              Yeah, it's going to take fiscal responsibility and a LONG time to pay off, but it is absolutely possible.

              Not if you've seen the Zeitgeist movies, which spell out how fractional lending and reserve banking is stealing the fruits of our labor and giving it to the bankers. Then you will know that we can never pay off our debt. Since the "debt" was created out of thin air by loaning a certain amount of the money supply, that money supply cannot possibly grow to 10% more of the money supply in order to pay back the "loan with 10% interest" (assuming the loan was 10%; the number doesn't matter, as long as it is po

          • by makomk ( 752139 )

            There's a fairly interesting argument that paying down the national debt would actually harm the economy []... macroeconomics seems to be a tad counter-intuitive.

        • by molog ( 110171 )

          This is completely academic. The US is bankrupt. It is not possible to pay off our debt unless we do one of two things.

          1. Default
          2. Print the money to pay it, without borrowing the created money like we do right now

          Why? A few reasons. For one reason there is more debt than there is money when you take into consideration the private debt as well. When you pay that much debt, reserves get drained and banks become insolvent, causing a classic fractional reserve deflationary spiral. That doesn't even take

      • This is like Enron declaring a downgrade invalid.

        Or like Enron paying for a triple A rating 4 days before their collapse? Companies like Enron pay for their rating from supposedly impartial ratings agencies who have been handed a monopoly on rating by the US gov and allowed to charge the people they are rating money for supplying that rating. S&P and the other rating agencies are now steeped in corruption, and have been since they started taking money for their ratings - they are definitely not an innocent party calling it as they see it I'm afraid, t

  • The DOJ has shown itself to be completely unwilling to prosecute bankers or their regulators. It's clear that the only chance we have for justice is vigilante justice. I would really like to see some poor guy who has had his life ruined by these criminals snap and start assassinating bankers and financial regulators. These people need to learn that there are consequences.

    • Imposing consequences is sometimes costly, but credit where due (and I otherwise don't admire Commies) these folks went at it with professionalism and gusto: []

    • I see you're prepared to discuss the issue rationally....

    • Violence begets violence.

      If you want to dismantle the military-industrial-complex, you do not start by validating is existence by behaving in a violent and short sighted manner.

      "Look at the violent, poor youth in the UK! Rioting. Looting. Please, jackbooted thugs, please protect us!"

      These reckless youths have the middle class begging for a more authoritarian police state. BEGGING FOR IT!!

      The first things that the revolutionaries need to do is to stop behaving in immoral ways. All their violent,
      • Re: (Score:2, Interesting)

        by Grishnakh ( 216268 )

        Sorry, but violence is pretty much the only way to effect change. History has shown this over and over.

        If a group of corrupt, evil people are running things, how else do you propose to get rid of them? They're not going to go on their own.

        Just look at all the revolutions in the Arab world recently. Were they peaceful? No, not really, especially the one in Libya. Some of them got lucky, like in Egypt where the violence was minimal (though present) and the leaders stepped down before long, but others hav

      • Violence is the last resort of the disempowered. Justice is said to belong to the courts -- a system that reduces violence in society a great deal. But if the courts fail...

        When you talk everything away from someone, you eventually lose control over them, and then they turn on you.

        Not saying that I support violence, but I *am* saying that we should consider a larger picture for why these things happen. That is, if you consider intelligence to be of some utility in preventing violent outbreaks from happe
    • The DOJ has shown itself to be completely unwilling to prosecute bankers or their regulators.

      Not only that, but the DoJ has also taken steps to punish other government officials, notably New York AG Eric Schneiderman [], for looking for ways to prosecute under their own authority. They've made it clear that the only penalty the Obama administration will accept for the banks is a fine of somewhere around $60 billion, which will look like a big number to satisfy the public but is peanuts compared to what those banks earned with their illegal practices.

      • by sjames ( 1099 )

        If it's going to be fines, perhaps we should just liquidate a few thoroughly rotten banks and use that to cover the debt. The banks crashed the economy, they have a moral duty to restore it even at the cost of their own existence.

    • For bankers, it's the Double Death!!!
    • by jafac ( 1449 )

      Well - if it comforts you, you can know that both Bernie Madoff, and Alan Stanford had the living shit kicked out of them in prison. Stanford likely has permanent brain damage, and will likely be crippled for life. This is two people of the hundreds of criminals who are currently, out, free, and continuing to plunder - PLUS, the enabling politicians, PLUS, the newsmedia pundits who cheered them on for 3 decades, PLUS. . . . THE IDIOTS WHO VOTED FOR THIS SYSTEM! (as far as I'm concerned, all 49 million wh

  • no worries (Score:5, Funny)

    by Trepidity ( 597 ) <delirium-slashdo ... g ['kis' in gap]> on Thursday August 25, 2011 @11:44AM (#37207178)

    I'm confident that an SEC investigation of this issue will set the record straight.

  • Rolling Stone (Score:5, Informative)

    by geekmansworld ( 950281 ) on Thursday August 25, 2011 @11:46AM (#37207200) Homepage

    Those interested in the particulars might also want to check out a recent Rolling Stone article by Matt Taibbi. Basically, the SEC feels that until an actual case is opened, it is not required to store files for "matters under investigation". Definitely worth a read. []

  • Revolving door (Score:5, Informative)

    by greg1104 ( 461138 ) <> on Thursday August 25, 2011 @11:49AM (#37207254) Homepage

    The SEC doesn't enforce anything at the big banks, because those companies are where ex-SEC lawyers go if they want a big paycheck later. You don't prosecute your future employer. They only go after little fish just so they can appear as if they are doing their job. Small hedge fund who did something wrong? Expect the SEC to kick your ass if you cross them. Firm like Goldman? The SEC management will stop any attempt to investigate them, because the top people have their eye on retiring from there to a cushy Goldman job.

    There's a good chat with Matt Taibii, author of the fun Why Isn't Wall Street in Jail? [], discussing how SEC Document Shredding Covers Up Wall Street Crimes []. This has been going on for a long time now, and the shredding is central to why the Bernie Madoff scheme wasn't caught earlier too.

    • by PPH ( 736903 )

      The Madoff instance is interesting in that he ran a relatively small shop. Unlike Goldman, there wasn't room in his organization to park a bunch of ex-SEC buddies. And its likely that they realized this, so their motivation probably lies elsewhere.

      The SEC is engaged in 'pulling back' profits taken out of the Madoff Ponzi scheme by earlier investors. My suspicion: Some of the SEC staffers (or family, to avoid conflict of interest) may have been early Madoff investors. If the preliminary investigations sugge

      • Madoff is a smart guy -- all the evidence you need is wrapped up in his Ponzi scheme.

        I suspect you're spot-on about the early investors. I suspect that, if that IS in fact true, that Madoff most likely did that intentionally -- he's got them by the balls in two ways.

        Firstly, bringing them in early and paying out to them? Bribery. Keep quiet about things, here's a ton of money.
        Secondly, blackmail. Oh, by the way, this is all totally illegal and you are now complicit. Enjoy your money, keep your mouth sh

  • Full article on their paper edition, appetizer here [] but don't eat anything heavy prior to reading.

  • "The SEC insists it has kept records in accordance with the law on its computer system".
    Yeah, right.
    Perhaps that should read more like... "Some non-technical SEC suit, with neither the insight nor expertise required to make such pronouncements, said 'The SEC insists it has kept records in accordance with the law on its computer system.'"
  • When a revolving door exists between corporate powers and government, then this kind of distasteful behavior should be expected. The solution should be to create a system at the government regulator that makes it impossible. Destroying records? Create a system that logs all work, always. Make it so, in order to do their jobs, employees must leave a trail of documentation that is automatically stored with an agency outside their control.

  • I say hang em with their own rope. I am sure that the SEC has various fines and what not it can impose on corporations for each instance of the actions that they have been hit with. I say let them play by their own rules. No I don't want to see the SEC go away but would like them to actually do their job. They should go after individuals who ordered or where compliant in the data destruction.
  • "The SEC exists to set a tough example on corporate governance, and it fines banks heavily for both lax practice and deliberate malpractice.".. I laughed out loud when I read this because the truth is that the SEC is currently there to let financial wrong-doers off the hook and to act as as employment agency for wannabe-wall-streeters.

    See this shocking article: (print version) []

  • by j. andrew rogers ( 774820 ) on Thursday August 25, 2011 @12:48PM (#37208134)

    One of the questions raised when Obama appointed Mary Schapiro to run the SEC was the fact that she was the party responsible for minimizing oversight, actively ignoring whistleblowers, in the Madoff case. While the media was disinterested in her appointment to head the SEC it raised some eyebrows in the financial community given that she was largely responsible for the non-investigation of Madoff in her previous roles.

    It is not unreasonable to suggest that the current SEC has significant self-interest in destroying the paper trail in the Madoff case. From outward appearances it reflects gross incompetence on the current head of the SEC in the best case and many would raise the specter of malfeasance.

  • Federal records regulations are broad and rather simple. If material doesn't meet a specific condition for retention, such as an open investigation, then it must be destroyed within a specified time frame, based on the content of the material. These rules were developed when paper was the primary medium of storage.

    To paraphrase: "Never attribute to malice that which is adequately explained by bureaucracy."
    • by dave562 ( 969951 )

      Yet in this case the SEC had an agreement with (I believe) the National Archives to maintain all of the documents that they destroyed. In fact they had to make special requests to have the documents destroyed earlier than they otherwise would have been. The details are in the Rolling Stone article.

    • by sjames ( 1099 )

      Except in this case, the destroyed records ARE of the type mandated for 25 year retention.

  • Ironically, the Slashdot ad in the upper-left of my screen is for a document shredding company.


  • Japanese nuclear auditors and regulators getting cushy jobs later in the nuclear industry. This always blows up sooner or later and the price to pay always is gigantic. There is a _reason_ these regulators and auditors exist, namely to prevent the inevitable blow-up.

    For them to be corrupt is treason at best. Life without parole is too good for these corrupt and evil scum.

  • The NSF just exonerated Michael Mann for doing the same thing with climate data, I'm not sure why the SEC wouldn't be allowed to do it too?

    • Uhh -nice try, but these are not equivalent at all:

      In the case of the SEC they have destroyed data which probably would have shown that there were a lot more people they should have gone after -much as the Bush White House 'lost' several years of email which would have shown that White House staffers were illegally doing Republican Party business while on the job.

      In the case of Mann he was found NOT to have falsified, improperly manipulated or destroyed data -SEVEN TIMES

The only function of economic forecasting is to make astrology look respectable. -- John Kenneth Galbraith