In a letter dated August 17, 2011, Senator Chuck Grassley (R. Iowa) of the Senate’s Committee on the Judiciary, asked SEC Chairman Mary Schapiro whether the Commission has destroyed files relating to some of its more high-profile and controversial matters, such as its investigations of Bernie Madoff, Goldman Sachs, Bank of America, Lehman Brothers and others. Senator Grassley’s inquiry is based on the allegations in a letter from Darcy Flynn, a thirteen-year veteran of the staff.

According to the letter, Senator Grassley received a letter from Mr. Flynn which alleged that "SEC staff has destroyed over 9,000 files relating to Matters Under Investigation (MUI)." Senator Grassley’s letter further states:

… Mr. Flynn claims that the SEC destroyed files relating to MUIs even in extremely important cases such as the investigation of Bernard Madoff, Goldman Sachs trading in AIG credit default swaps in 2009, financial fraud at Wells Fargo and Bank of America in 2007 and 2008, and insider trading investigations at Deutsche Bank, Lehman Brothers and SAC Capital. If Mr. Flynn’s allegations are correct, the intentional destruction of at least 9,000 MUIs would appear to greatly handicap the SEC’s ability to create patterns in complex cases and calls into question the SEC’s ability to properly retain and catalog documents.

The Senator elaborated on his inquiry in a press release, stating: "It doesn’t make sense that an agency responsible for investigations would want to get rid of potential evidence. If these charges are true, the agency needs to explain why it destroyed documents, how many documents it destroyed over what timeframe, and to what extent its actions were consistent with the law." The letter asks Chairman Schapiro whether the SEC routinely destroyed MUIs, whether the information could be retrieved and whether the destruction may have harmed future investigations.  

Broc Romanek of the Blog has an interesting look at the issue, pointing out that the story was broken by the magazine Rolling Stone and quoting the Wall Street Journal’s coverage of this matter, including the SEC’s statement that "the agency was not required to retain all documents," but it "changed its policy last year regarding destruction of files for ‘matters under investigation.’"

Senator Grassley has asked the Commission to respond by August 31, 2011.