Compliance

11:44 AM
Ivy Schmerken
Ivy Schmerken
Commentary
Connect Directly
Facebook
Google+
Twitter
RSS
E-Mail
50%
50%

SEC's Document Disposal Policy in Disarray

The agency was illegally destroying files and documents pertaining to preliminary investigations of notorious characters such as Bernard Madoff and Wall Street firms.

Judging from headlines this morning about the Securities and Exchange Commission "illegally" destroying documents and files related to early-stage investigations, there is a problem here.

The media is reporting that the SEC has illegally destroyed files and documents related to thousands of early-stage investigations over the past 20 years. It’s quite possible that destroying these files and documents could have erased valuable information on Bernard Madoff as well as some of the Wall Street firms that were later investigated after the financial crisis of 2008.

From today's New York Times:

The destroyed files compromise records agency reportedly destroyed at least 9,000 preliminary inquiries into matters involving notorious individuals like Bernard L. Madoff, as well as some of the Wall Street firms that were later the subject of scrutiny after the 2008 financial crisis, including Goldman Sachs, Lehman Brothers, Citigroup and Bank of America.

Yet this is the same regulatory agency that requires Wall Street firms to retain their records and has brought numerous enforcement cases against firms that fail to do so, notes today's New York Times.

But apparently this happened because of an SEC policy that called for the disposal of records of a preliminary inquiry that was closed and did not get upgraded to a formal investigation. This policy has since changed and it’s all due to Darcy Flynn, an employee of the SEC enforcement division for 13 years, who raised questions about the document destruction in early 2010, according to the New York Times article. Flynn took a new job in January of 2010 helping to manage the disposition of records for the division. Flynn continues to work at the SEC, but has sought protection under the federal whistle-blower laws, according to the NY Times. [The document disposal was first reported by Rolling Stone Magazine on Wednesday, and is now the subject of an investigation by the Senate Judiciary Committee].

Obviously, an opportunity has arisen for document management and storage technology companies to approach the SEC about properly storing its files and documents. There are many data retention companies (Iron Mountain, EMC Corp.) that will have a field day with this knowledge, as they will most likely direct their sales forces to call upon the agency’s chief technology officer. Unfortunately, government spending on technology has decreased of late,and the SEC has budget constraints.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio
Comment  | 
Print  | 
More Insights
More Commentary
The Art of Leveraging Governance, Risk & Compliance Technology Tools
Eliminating compliance risk across information channels is a constantly transforming task. Ongoing auditing and auto-corrective technology can increase trust, accountability, and transparency.
The FSB's Swaps Data Aggregation Report, a Technical Review
The Report discusses legal, technological, and regulatory issues to be resolved in order to obtain a complete view of swap transactions around the world.
Raising the Data Management Stakes
Data management can get firms only so far. Advanced data analytics is needed for all business lines and for calculating risk, especially with BCBS 239 on the horizon.
Asia/Pacific Challenged by T+2 European Settlement Cycle
A survey commissioned by Omgeo shows market participants in Asia/Pacific are ill prepared for Europe's T+2 settlement deadline in October.
The Future of the CIO
Today’s chief information officers are no longer hardcore technologists. And they aren’t pure business leaders either. They need to have excellent business and technology acumen to succeed.
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - Elite 8, October 2014
The in-depth profiles of this year's Elite 8 honorees focus on leadership, talent recruitment, big data, analytics, mobile, and more.
Video
Stressed Out by Compliance, Reputational Damage & Fines?
Stressed Out by Compliance, Reputational Damage & Fines?
Financial services executives are living in a "regulatory pressure cooker." Here's how executives are preparing for the new compliance requirements.