September 23, 2021

No S.E.C. Inquiries Harmed by Document Destruction, Report Says

But the report, by the S.E.C. inspector general, found no evidence that any of the investigations were harmed as a result.

The inspector general, H, David Kotz, said the agency violated federal rules by giving incomplete information to the National Archives last year about the records. The S.E.C. failed to tell officials at the archives that the agency’s 20-year policy had been to discard all documents in closed inquiries that did not become formal investigations, the report says.

The report comes after accusations from an S.E.C. enforcement lawyer, who said the agency improperly destroyed documents related to thousands of preliminary inquiries of big Wall Street banks, Bernard L. Madoff’s Ponzi scheme and other cases.

The report stopped short of saying no harm was done by the destruction of records. Mr. Kotz said he did not make “an exhaustive audit or review” of the potential impact.

Mr. Kotz said he was referring the matter to the agency’s enforcement director for instruction or counseling of the senior enforcement officials who dealt with the National Archives.

Darcy Flynn, the S.E.C. enforcement lawyer, has claimed that more than 9,000 records related to preliminary investigations were destroyed. Ms. Flynn said they included inquiries into Goldman Sachs, Bank of America, Wells Fargo, Deutsche Bank, Lehman Brothers and Mr. Madoff.

Mr. Kotz’s report mentions documents related to Lehman Brothers and Mr. Madoff. It says that from 1992 through July 2010, 10,468 preliminary inquiries were closed without developing into formal investigations.

The S.E.C. acknowledged in September that some documents were probably destroyed under an agency policy that was changed last year. But the S.E.C. said it did not believe that any current or future investigations were harmed by the policy, which allowed documents to be discarded in cases that were closed when staff members decided a formal investigation was not warranted.

The current policy requires all documents to be kept, whether they are part of a preliminary inquiry that is closed or a formal investigation.

An S.E.C. spokesman, John Nester, said Tuesday that the agency was pleased that Mr. Kotz’s review “found no evidence of any improper motive on the part of current or former S.E.C. staff” or of harm to investigations.

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S.E.C. Leased Unneeded Space, Report Says

WASHINGTON — The Securities and Exchange Commission leased $556 million worth of office space last year based on a “deeply flawed and unsound analysis” of its needs, without competitive bids and using backdated approval forms to justify its rushed attempt to rent the offices, according a report by the agency’s inspector general released Tuesday.

The report, dated May 16 and posted Tuesday on the commission’s Web site, concludes that the S.E.C. may have violated federal law by committing the agency to lease office space before Congress had appropriated enough money to pay for the 10-year contract.

The actions “represent another in a long history of missteps and misguided leasing decisions made by the S.E.C. since it was granted independent leasing authority by Congress in 1990,” H. David Kotz, the S.E.C. inspector general, wrote in the report.

John Nester, an S.E.C. spokesman, said in a statement that the agency was “currently reviewing” the report. But it already has instituted some changes, he said. The changes include requiring leasing decisions to be approved by the agency’s chief operating officer, a recently created position, and acquiring a system that automates the square footage needs of the agency, “so that management is better able to calculate spacing.”

The leases for more than 900,000 square feet of office space, plus an option on 500,000 square feet more, came after Congress passed the Dodd-Frank act, which greatly expanded the S.E.C.’s role in financial regulation. The agency estimated that it would need to hire 800 staff members over the next two years to put into effect the new regulations required by the law.

Congress authorized a doubling of the S.E.C.’s budget over the next five years to pay for the additional duties, but it didn’t appropriate the money. Nevertheless, officials in the S.E.C.’s Office of Administrative Services leased the space.

In October, less than three months after signing the lease, the S.E.C. tried to give back two-thirds of the space, and in March of this year, it said it was trying to sublease the remainder of the offices. The owner of the building has asserted that the S.E.C. owes nearly $100 million in damages for its actions, which the S.E.C. disputes.

Part of the supporting documentation justifying the signing of a lease without competition was falsified, the inspector general found. A “justification and approval report” was not completed until a month after the lease was signed, but documents were pre-signed or altered to make it appear that the leasing authority was in place, the report said.

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Former S.E.C. Official Represented Indicted Financier, Agency Says

Spencer Barasch, former head of enforcement for the Securities and Exchange Commission in Fort Worth, Tex., is being investigated by the United States Attorney’s Office and the Federal Bureau of Investigation, according to testimony on Friday by Robert Khuzami, the S.E.C. enforcement director, and David Kotz, the agency’s inspector general.

The criminal inquiry follows S.E.C. internal findings that Mr. Barasch made numerous requests after he left the S.E.C. to represent Mr. Stanford and was turned down each time.

Mr. Barasch persisted in his requests even though he directly dealt with the Stanford case while at the S.E.C. and was partly responsible for ignoring repeated red flags S.E.C. examiners raised about Mr. Stanford as early as 1997, Mr. Kotz found in a 2010 report. He eventually did provide some legal counsel to Mr. Stanford in 2006, the report found.

“We made a referral to criminal authorities,” Mr. Khuzami told a House Financial Services oversight subcommittee.

In addition, Mr. Kotz and Mr. Khuzami said they had referred the matter for investigation to the Texas and Washington bars.

Republican lawmakers called the hearing to investigate why it took the S.E.C. so long to investigate Mr. Stanford despite repeated attempts by S.E.C. examiners to bring the matter to the enforcement division’s attention.

The agency finally filed civil charges against Mr. Stanford in February 2009. He was arrested in June 2009 and criminally charged with fraud in connection with a $7 billion scheme linked to certificates of deposit issued by his Antigua-based banking company. He has denied any wrongdoing.

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