In a dispute over destroyed records, including those on convicted Ponzi-schemer Bernard Madoff and other high-profile cases, a Washington federal judge ruled Jan. 17 that the U.S. Securities and Exchange Commission did not abuse its discretion in how it responded to a request to recover them.
U.S. District Judge James Boasberg dismissed a lawsuit brought by Citizens for Responsibility and Ethics in Washington, or CREW. The group alleged that the agency failed to try to recover records on now-closed investigations that were destroyed, in violation of the Federal Records Act.
Boasberg found, however, that the Federal Records Act only required the SEC to take action to recover records that were “removed” from the agency, not records that were destroyed. Even if the statute did require action on destroyed records, the judge found that the SEC had made enough of an effort to do so.
CREW filed a Freedom of Information Act request in September 2011 seeking documents related to the SEC’s decisions not to proceed with closed preliminary investigations, including “Matters of Inquiry” into Madoff, Goldman Sachs, Wells Fargo, Bank of America and a host of other financial institutions.
Before the SEC responded to the request, according to court documents, CREW filed suit against the agency alleging that it was destroying records and failing to recover destroyed records in violation of the Federal Records Act. Boasberg dismissed the first half of CREW’s complaint as moot because the SEC had since changed its policy on how it handled records in closed investigations.
On the issue of whether the SEC had to recover destroyed documents, the agency said that the Federal Records Act called for agency heads to alert the National Archives and Records Administration about “removal, defacing, alteration, or destruction” of records. But the statute only required agencies to initiate actions with the U.S. attorney general to recover records that were “unlawfully removed.”
The SEC argued that the statute drew a distinction between “removed” and “destroyed” in discussing the agency’s obligations. CREW countered that the history of the law showed that it was intended to also apply to destroyed records. Boasberg said that it was a “close question,” but he sided with the SEC in relying on the “plain meaning” of the law.
Even if the SEC did have to take action, Boasberg wrote that the agency’s efforts, “while clearly not as extensive as CREW would have liked, were not so woefully insufficient” that the agency couldn’t claim it tried to fulfill its duties. For example, he noted that there were e-mails detailing efforts by senior enforcement division staff to recover information on a half dozen “high-profile matters” from sources in Washington, Los Angeles and New York.
In a statement, SEC spokesman John Nester said that the “decision speaks for itself.”
Anne Weismann, CREW’s chief counsel, said today that the organization was disappointed and concerned about how the decision might apply in future cases involving destroyed records.
“The bottom line of this decision is very troubling, which is that agencies are under no obligation to do anything about destroyed records,” she said. “I think if that is the correct interpretation of the statute, then there’s a huge hole in the enforcement scheme that needs to be plugged.”
When asked if CREW would appeal, Weismann said the group is “considering our options.”