We now know that senior officials at the Securities and Exchange Commission underfunded their agents in the field, ignored complaints from whistleblowers and routinely destroyed documents pertaining to Wall Street criminals. Are we surprised? by Bill Gee
(centrist)
Wednesday, August 31, 2011
With the news cycle dominated by earthquakes and hurricanes, a story about abuses at the SEC revealed by whistleblower Darcy Flynn barely got a mention.
Al Capone – arguably one of the most storied gangster bosses of the Prohibition era. The man was guilty as sin of money laundering, corruption, smuggling, and murder. Unfortunately, the man was smart and he commanded the unquestioning loyalty of mobsters, businesspeople, politicians and ordinary people. What finally put the man in Alcatraz? Tax evasion on his ill-gotten gains from his illegal activity!
The notorious gangster was taken down by an accountant working for the justice department who poured through thousands of financial documents that had been gathered over the course of years until a case could be built.
What if Al Capone had been working for Wall Street today instead of running a crime syndicate during prohibition? It is likely that he would be a billionaire running one of the Street’s “too-big-to-fail” institutions, and like his fellow criminal barons, he would never see the inside of a courtroom.
Darcy Flynn
Likely to go down in history as the next Jeffry Wigand, Darcy Flynn is a mid-level operative working for the Securities and Exchange Commission (SEC). According to an article in Rolling Stonemagazine, Flynn became aware of a possible illegal action that was taken as a regular and routine operating practice at the SEC. Specifically, the act of destroying all documents pertaining to an investigation by the agency if the agency’s senior managers felt that the case should not be expanded into a full-blown inquiry.
When agents at the SEC see something odd, or they receive a tip from a possible whistleblower, they open a preliminary investigation called an MUI (Matters Under Investigation). During this phase of the investigation, the agent builds a file that contains a company’s audited financial statements, transcripts of informal interviews with employees, press clippings, etc. After careful review of the facts in the file, if the agent feels as though something fishy is going on, they submit the MUI to the senior management along with a request to move the MUI to the next phase, a full-blown investigation. Once at this phase, the SEC has the authority to subpoena witnesses, issue search warrants, and take depositions. In other words, they are able to exercise their full law-enforcement abilities.
More often than not, the senior management at the SEC rejects the MUI and closes the file.
Down the Black Hole
What happens next is the unusual and illegal action by the SEC. Once the MUI is closed, the file is destroyed! Not placed in an archive box and placed in a warehouse for 35 years like they’re supposed to, but destroyed immediately once the MUI is closed! According to Flynn, this practice has been going on since 1993. Destroyed MUI’s included files on Bernard Madoff, AIG, Deutche Bank, Bank of America, Merrill Lynch, Lehman Brothers, Bear Sterns – basically all of the major players in the 2008 Wall Street collapse that nearly destroyed the economy.
If you’ve wondered why not a single Wall Street banker has been brought before a Grand Jury in leg irons yet, now you know. The evidence was destroyed years ago!
A Cozy Relationship
We could chalk this whole thing up to SEC incompetence, which is what I’m sure the managers at the agency will claim. They’ll say that a 1993 memo to destroy a particular file was “misinterpreted” by their underpaid and apparently stupid office personnel to mean that all files needed to be destroyed. But when we look closer, it’s not hard to see that the nation’s financial regulator has had a little more than a fond affection for the firms it was supposed to be policing.
The SEC’s top management have long had a “revolving door” policy with Wall Street. The Street’s biggest firms all have former managers and executives working for the SEC. When a particularly talented agent at the SEC smells something fishy in the books, they often find themselves working for the companies they were investigating, often at salaries that are several times higher than what they were getting while working for the government. (Naturally, the former SEC agent would make sure that the file they were building against their future boss is promptly destroyed prior to starting their new job.)
Senator Charles Grassley (R-Iowa) has tried to get the current SEC Chair, Mary Shapiro, to comment on Darcy Flynn’s accusations, but to date the agency has refused to do so or even acknowledge that the file-destroying policy even exists.
Not that I believe for one second that the Senator from Iowa was not already aware of what was going on at the SEC. After all, Senator Grassley has been in Congress since 1975 and served at the Chairman of the Senate Finance Committee in 2001, and again from 2003 to 2006. In that position, he would have had a very cozy relationship with all of the top regulators at the SEC and he would have met regularly with all of the top Wall Street firms during the height of the bubble.
Corporotocracy Revisited
So why isn’t Darcy Flynn’s name being splashed all over the 24-hour news channels? Why isn’t Christopher Cox, Mary Shapiro, and all of the other senior officials of the SEC not being dragged in front of a Congressional hearing, charged with illegally destroying evidence and obstruction of justice?
The reason is cold and simple. Wall Street already has wrested complete control of the Government and the media. For those of us who are actually trying to air Darcy Flynn’s revelations, our voices are small and tolerated by our corporate masters because they know that there is nothing we can do to stop them.
Assuming that Flynn’s whistle blowing revelations are being taken seriously at the SEC, chances are they are building an MUI file on it, which will then be promptly closed once the matter gets placed before its senior managers.
At least we now know what will happen to that file once the case is closed.
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