The SEC, which was accused this week of continuing to destroy investigative records in violation of federal law, on Wednesday directed its enforcement staff to stop purging the records at issue.
SEC general counsel Mark D. Cahn sent a memo to staff members saying they should stop disposing of documents from closed cases until further notice.
The action came one day after enforcement lawyer Darcy Flynn alleged that the SEC was routinely getting rid of records from formal investigations, including cases that were closed without enforcement action and those that led to either settlements or litigation with accused wrongdoers.
Flynn’s lawyer, former SEC official Gary J. Aguirre, had argued that the destruction of enforcement records could help the SEC avoid accountability while going easy on Wall Street.
Flynn first raised concerns about the destruction of certain enforcement records last year. In August 2010, the SEC assured the National Archives, which oversees federal record-keeping, that it had put a freeze on the practice.
But this week Flynn alleged that the illegal destruction of records extended beyond just preliminary inquiries, which were the focus of his original allegations, and that the misconduct was ongoing.
“The decision to stop destroying these records is a key step to opening the windows into the SEC to see how it operates,” Aguirre said. “The SEC windows have been sealed closed and shuttered for too long.”
SEC spokesman John Nester said the agency is working with the National Archives to develop a new policy and suspended the old policy in the meantime “out of an abundance of caution.”