eDiscovery Trends: SEC Orders Its Staff to Cease Document Destruction Pending Policy Review
By: Doug Austin
November 1, 2011
The U.S. Securities and Exchange Commission ("SEC") recently ordered all of its enforcement staff attorneys to cease the destruction of documents from investigative files after criticism that the SEC wrongfully destroyed thousands of documents associated with high profile enforcement matters, including investigations into Wall Street banks. The National Archives and Records Administration (NARA) and the SEC's inspector general are currently examining whether the organization's document destruction policy requires revision. This cease order comes in the wake of information provided by a SEC whistleblower, indicating that the SEC wrongfully destroyed thousands of documents from preliminary investigations referred to as “MUIs” (Matters Under Inquiry).
- In the past, the SEC would destroy documents pertaining to “MUIs” that had been closed, including cases that never developed into formal investigations as well as those that had been decided.
- Some of these destroyed documents pertained, either directly or peripherally, to what would later become high profile cases. Among them were documents relevant to the Madoff Ponzi scheme and several Wall Street bank fraud investigations.
- Although private companies routinely destroy documents and files that are closed or no longer in use, the SEC is subject to federal laws and regulations that require federal agencies to retain more records than a private firm. The SEC has been criticized by members of Congress of violating these laws and avoiding its legal compliance burden, especially where destroyed documents could have proven crucial in later legal cases.
- As a result, the present controversy has forced the SEC to work with NARA to reconsider its document retention policies and to suspend, for now, destruction of files and documents. Parties are still arguing whether a requirement to retain all documentation distracts resources from the SEC's main objective of preventing, discovering and penalizing those involved in securities fraud.
So, what do you think? Has the SEC failed in a serious way to meet compliance standards, or is this controversy placing undue emphasis on documents that are unlikely to ever be needed? Please share any comments you might have or if you'd like to know more about a particular topic.