MELISSA BLOCK, Host:
Yet another story about financial regulators is turning heads today. A staff member at the Securities and Exchange Commission has complained to Congress that thousands of investigative documents were destroyed by the agency. The whistleblower says some of those missing papers relate to huge investment banks and their role in the 2008 mortgage crisis. NPR's Carrie Johnson has that story.
CARRIE JOHNSON: Long-time SEC staffer Darcy Flynn is asking Congress to protect him from retaliation after blowing the whistle on document destruction that he says stretches back for 20 years. Some of the missing files involve early stage inquiries the agency made into the workings of Goldman Sachs, Bank of America and Lehman Brothers.
GARY AGUIRRE: The same big banks that delivered us the 2008 financial crisis.
JOHNSON: That's Gary Aguirre. He's a lawyer in San Diego who brought Flynn's allegations to the attention of Congress. Aguirre is a former SEC whistleblower himself. And he is one of many people who are calling for more accountability on Wall Street and for more action from the SEC.
AGUIRRE: I just think that when you've destroyed 9,000 files of investigations, it makes sweeping under the table a lot easier.
JOHNSON: Iowa Republican Senator Charles Grassley for one is paying attention. Grassley wrote to SEC leaders about the allegations first reported Wednesday by Rolling Stone magazine. Grassley says he wants more information from the agency.
CHARLES GRASSLEY: We know that Bernie Madoff - that there were several allegations against him that were never followed up on by the SEC. So basically, I just want to know that the SEC is doing its job to protect middle class 401(k)s and other investments.
JOHNSON: An SEC spokesman says in a written statement that there's nothing wrong with how the agency handled internal documents. The spokesman says, quote, "there is no requirement that every document that comes into an agency's possession in the course of its work must be retained." And that view is getting some support from outside analysts who follow the SEC.
JAY BROWN: My initial take on this is it's a tempest in a teapot.
JOHNSON: That's University of Denver law professor Jay Brown.
BROWN: What appears to be going on here is the SEC would look at a matter, decide not to bring the case and largely purge the file of documents.
JOHNSON: The kind of documents that might include newspaper articles or anonymous tips, anything that might have prompted the agency to start a file called an MUI, for matter under inquiry. Jacob Frenkel is a securities lawyer in Washington.
JACOB FRENKEL: A MUI is nothing more than someone has called in with a complaint or some staff person has made a decision that there is something to at least look at, at the most preliminary level.
JOHNSON: Frenkel says there's no allegation the SEC tossed sensitive documents from banks it got under subpoena in high-profile cases that investors and lawmakers care about. So the debate boils down to this: What does an investigative record mean to Congress and the courts? Under the law, those investigative records must be kept for 25 years. But federal officials say no judge has ruled that papers related to early-stage SEC inquiries are investigative records. The SEC's inspector general says he's conducting a thorough investigation into the allegations, and he tells NPR he'll issue a report by the end of September. Carrie Johnson, NPR News, Washington.
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