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Matt Taibbi: How The SEC Covers Up Wall Street Crimes

Brand new for Rolling Stone by Matt Taibbi.

A whistleblower claims that over the past two decades, the agency has destroyed records of thousands of investigations, whitewashing the files of some of the nation's worst financial criminals.

Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – "Hey, chief, didja know this guy had two wives die falling down the stairs?" No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.

That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.

Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency's records – "including case files relating to preliminary investigations" – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term "Orwellian," devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or "Matters Under Inquiry" – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission's internal website. "After you have closed a MUI that has not become an investigation," the site advised staffers, "you should dispose of any documents obtained in connection with the MUI."

Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.

The widespread destruction of records was brought to the attention of Congress in July, when an SEC attorney named Darcy Flynn decided to blow the whistle. According to Flynn, who was responsible for helping to manage the commission's records, the SEC has been destroying records of preliminary investigations since at least 1993. After he alerted NARA to the problem, Flynn reports, senior staff at the SEC scrambled to hide the commission's improprieties.

As a federally protected whistle-blower, Flynn is not permitted to speak to the press. But in evidence he presented to the SEC's inspector general and three congressional committees earlier this summer, the 13-year veteran of the agency paints a startling picture of a federal police force that has effectively been conquered by the financial criminals it is charged with investigating. In at least one case, according to Flynn, investigators at the SEC found their desire to investigate an influential bank thwarted by senior officials in the enforcement division – whose director turned around and accepted a lucrative job from the very same bank they had been prevented from investigating. In another case, the agency farmed out its inquiry to a private law firm – one hired by the company under investigation. The outside firm, unsurprisingly, concluded that no further investigation of its client was necessary. To complete the bureaucratic laundering process, Flynn says, the SEC dropped the case and destroyed the files.

Much has been made in recent months of the government's glaring failure to police Wall Street; to date, federal and state prosecutors have yet to put a single senior Wall Street executive behind bars for any of the many well-documented crimes related to the financial crisis. Indeed, Flynn's accusations dovetail with a recent series of damaging critiques of the SEC made by reporters, watchdog groups and members of Congress, all of which seem to indicate that top federal regulators spend more time lunching, schmoozing and job-interviewing with Wall Street crooks than they do catching them. As one former SEC staffer describes it, the agency is now filled with so many Wall Street hotshots from oft-investigated banks that it has been "infected with the Goldman mindset from within."

The destruction of records by the SEC, as outlined by Flynn, is something far more than an administrative accident or bureaucratic fuck-up. It's a symptom of the agency's terminal brain damage. Somewhere along the line, those at the SEC responsible for policing America's banks fell and hit their head on a big pile of Wall Street's money – a blow from which the agency has never recovered. "From what I've seen, it looks as if the SEC might have sanctioned some level of case-related document destruction," says Sen. Chuck Grassley, the ranking Republican on the Senate Judiciary Committee, whose staff has interviewed Flynn. "It doesn't make sense that an agency responsible for investigations would want to get rid of potential evidence. If these charges are true, the agency needs to explain why it destroyed documents, how many documents it destroyed over what time frame and to what extent its actions were consistent with the law."

Continue reading at Rolling Stone...



Taibbi discusses Wall Street and the SEC.

Video - Matt Taibbi talks to Cenk about the revolving door between Wall St. and the regulatory agencies - Feb. 16, 2011

Taibbi's devestating new article in Rolling Stone talks about the corrupt and cozy relationship that characterizes the revolving door between banks on Wall Street and the agencies that exist to regulate them.  In the clip above, Taibbi sits down with Cenk.  Read an excerpt from the Rolling Stone opus in the link below, and enjoy this, the absolute money quote:

"You Put Lloyd Blankfein In Pound-Me-In-The-Ass Prison For One Six-Month Term, And All This Bullshit Would Stop, All Over Wall Street," Says A Former Congressional Aide, "That's All It Would Take, Just Once"




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Reader Comments (39)

Mukasey Declines to Create a U.S. Task Force to Investigate Mortgage Fraud


and this:

Mukasey Recuses Himself in Madoff Probe

Aug 17, 2011 at 2:41 PM | Unregistered Commenterjohn
I *like* that money quote!
Aug 17, 2011 at 3:27 PM | Unregistered Commenterrobin hood
Yep, it pretty well sums up the situation.
Aug 17, 2011 at 3:54 PM | Registered CommenterDailyBail
SEC Attorney Darcy Flynn Blows Whistle on Wall Street-Washington Incest

Aug 17, 2011 at 8:31 PM | Registered CommenterDailyBail
Here is the latest from Matt:

Matt Taibbi reveals financial crisis smoking gun


Ratings agencies are expected to provide solid guidance about investments. Rolling Stone's Matt Taibbi joins Chris Hayes to explain how newly-revealed documents reveal corruption and dishonesty at the core of our financial industry.
Jun 23, 2013 at 8:31 AM | Registered CommenterJohn
Here is the latest (2 days ago) from Taibbi:

Bank Whistleblower Alayne Fleischmann & Matt Taibbi on How JPMorgan Chase Helped Wreck the Economy
Nov 9, 2014 at 10:26 AM | Unregistered Commenterjohn
Eric Holder's Legacy: the Divine Right of Criminals


-----keep on keeping on!----
Nov 9, 2014 at 2:31 PM | Unregistered Commenterjohn
Links are not working John.
Nov 9, 2014 at 4:57 PM | Unregistered Commenterskinflint
You may need to copy and paste them into your browser, they are https and it works from here when i do it.
Nov 9, 2014 at 6:12 PM | Unregistered Commenterjohn
Well John, The voice over work sounds awful familiar.
Nov 9, 2014 at 9:15 PM | Unregistered Commenterskinflint
Pray tell what you're implying, skinflint?
Nov 10, 2014 at 2:34 AM | Unregistered CommenterCheyenne
My good man, very glad to hear your voice doing God's work. Hope all is well and that health and happiness visits your dwelling everyday.
Nov 10, 2014 at 7:22 AM | Unregistered Commenterskinflint
It didn't feel right letting Lloyd shoulder such a burden all by himself; his selfless charity practically compelled me to lend a helping hand.

My humble thanks for your kind benediction, sir. Things are indeed good my way. I hope the same is true for you.
Nov 10, 2014 at 10:16 AM | Unregistered CommenterCheyenne
The Hon. R. Christopher Whalen, long-time DB amicus and all-round good guy, supports our efforts to help Lloyd out.

Nov 10, 2014 at 11:12 AM | Unregistered CommenterCheyenne
Is there a follow up to this piece?
Nov 10, 2014 at 1:45 PM | Unregistered Commenterskinflint
Oh, yeah. I'm working on it now. Some of the disclosures in Taibbi's latest piece, linked above by john, bear an uncanny similarity with foundational subject matter of part 2, which rest assured will be shocking.

Speaking of which, Alayne Fleischmann's story (told by Taiibbi, id.) appears only to have just begun...

Nov 10, 2014 at 3:03 PM | Unregistered CommenterCheyenne
Sweet. The links that John sent there seems to be a subscription page to watch some other content. I will check those out as well. Just a final thought, and sort of as a joke. Thoughts on this new n'er do weller to replace Holder. I believe her to be of the same cloth as White, Holder et al. Thanks Cheyenne.
Nov 10, 2014 at 5:06 PM | Unregistered Commenterskinflint
And do you think Taibbi's time with Billions backed Greewald was an effort at some sort of message control or did Taibbi not like the line of work there. Mildly suprised to see Taibbi back at work at the old bloid
Nov 10, 2014 at 5:09 PM | Unregistered Commenterskinflint
Here's Taibbi's piece:


As for Lynch, yeah, she's the prosecutor who came up with the outrageous settlement for HSBC's crimes. The nefariousness of that agreement isn't well understood--yet (heh heh). In any case, she's been vetted by the criminal banking cabal.
Nov 10, 2014 at 5:12 PM | Unregistered CommenterCheyenne
It's been a good day! <grin>...
Nov 10, 2014 at 6:01 PM | Unregistered Commenterjohn
Well there fellas, I'll say this about that. If I was her, and I'm not, but if I was. I would not get on any airplane anytime soon and certainly would NOT drive a Mercedes. I'd promptly go out and purchase an old Ford pick up with a straight six, preferably a late sixtie model. One that is not privy to a emp blast and a hack job, and be careful where I park that thing. Whew.
Nov 10, 2014 at 6:13 PM | Unregistered Commenterskinflint
http://wallstreetonparade.com/. This is just a really nice site. Laid out real well with some heavy hitting storylines and links. Thanks, C.
Nov 10, 2014 at 9:42 PM | Unregistered Commenterskinflint
Yeah, sf, and Pam (with her husband Russ) updates it pretty much every Mon.-Fri. I'm impressed with their research. Her piece on Alayne Fleischmann yesterday is a good example. I've exchanged emails with her a couple of times on different topics, and she's always been very pleasant. So it's a must-check site, and worthy.
Nov 11, 2014 at 7:16 AM | Unregistered CommenterCheyenne
John, The last car I purchased was from GSA. While there, some cars that passed
the block were obviously cars that were forfeitures. Deal of the day was an upscale Beemer that was dressed out that went for $3500.00. I would assume Lynch is going to pass muster despite the fact that she is a minority.
Nov 11, 2014 at 7:34 PM | Unregistered Commenterskinflint
I am sick and god damn tired of the assholes who use minorities (of every kind) as a political excuse. Hell, even I was considered a minority during the last census, albeit I am officially an old mongrel and proud of it (tail wagging))….

She is quite qualified as a bitch of Satan and I shit you not. Doing God's work not withstanding. I hope it bites them in the ass...
Nov 11, 2014 at 7:43 PM | Unregistered Commenterjohn
Yea pretty much.
Some progressive sites are lamenting her possibly being held up as a result of team reds bias against blacks. Some are even decrying their lack of passing along legislation because the president is black. Meh.
Nov 11, 2014 at 7:59 PM | Unregistered Commenterskinflint
Yet another video of Gruber explaining in his best way just how stupid we are. I hope this guy is getting his ears chewed on by folks calling his office and leaving profanity laced tirades.http://www.blacklistednews.com/THIRD_Gruber_Video_Reveals_How_Administration_Sought_to_Hide_Obamacare_Tax/39136/0/38/38/Y/M.html
Nov 12, 2014 at 9:59 PM | Unregistered Commenterskinflint
Max Keiser's interview of Alayne Fleischmann:


No new info here. What a shame. Even a 10-minute pre-interview of the guest could've advanced the ball at least a couple of inches. But oh-no. Instead, we're treated to a watered-down rehash of Taibbi's piece, delivered at a very nasally 90 dB and devoid of any human interest, followed by an infomercial for some inchoate get-Max-rich crowd-funding scheme.

Nov 14, 2014 at 12:14 AM | Unregistered CommenterCheyenne
Cheyenne, Recently ZH ran an article on the banks, JP in particular in which they go on about life insurance policies and the recent deaths of banker types, most of which work for the morgue. Rather appropriate in this case. You'd think she'd be worked about punching the nest. Why does Kaiser always look as if he just stumbled out of bed, while his wife looks very nice and presentable?
Nov 14, 2014 at 7:26 AM | Unregistered Commenterskinflint
"most of which work for the morgue."

Ohhhhhhh, really? Impressive that sub-maggots could achieve such a new low.

Stacy produces and edits and does everything else on that show except for its signature screeching, and she's the foil for half of that. With that much help, I'd have a mattress a few feet off screen myself.
Nov 14, 2014 at 8:59 AM | Unregistered CommenterCheyenne
Heh Heh. So banks are holding a huge sum of face value paupers insurance on their employees. Some $600,000,000,000 worth apparently. Makes it worriesome to be one of them doesn't. Wonder how much Blankfein has. http://wallstreetonparade.com/2014/11/a-citigroup-banker-dies-along-with-responsible-press-reporting/
Nov 20, 2014 at 10:26 PM | Unregistered Commenterskinflint
New from HAZZBRO. Killanank game, fun for all ages. Seriously though, who is next? If you work in the industry, you gotta be worried. Just a wee bit.http://www.zerohedge.com/news/2014-11-24/massmutual-senior-vice-president-found-dead-stabbed-chest-apparent-homicide
Nov 24, 2014 at 6:19 PM | Unregistered Commenterskinflint
Happy Thanksgiving there Ladies and Gents.
Nov 27, 2014 at 7:47 AM | Unregistered Commenterskinflint
How Eric Holder Turned "Justice" Into a Wall Street Criminal Protection Racket

Dec 7, 2014 at 1:03 PM | Unregistered CommenterCheyenne
Just Dear God in Heaven Cheyenne. Congress is just shameful in their inaction here. I like the silent protestors in the backround of Holder's testimony holding the signs declaring drone murder is against the law. Also no mention of HSBC board member Comey being named to head the federal investigation unit responsible for what ever it is they are responsible for. Thanks for putting this together.
Dec 7, 2014 at 5:40 PM | Unregistered Commenterskinflint
Covington and Burling's growing renewables fraud racket will soon be exposed…. Nice job Cheyenne!


In a growing area of our practice, we represent a number of renewables providers and financial firms in connection with wind, solar, and other renewable energy technologies.

RES Americas on production tax credit and electric transmission issues.
Clean technology funds in making venture capital investments with investee companies engaged in wind, solar, energy efficiency and other innovative technologies.
Private equity firms and hedge funds concerning federal and state renewable portfolio standards.
American Wind Energy Association in rulemaking proceeding before FERC to reform Order No. 888.
Dec 7, 2014 at 8:52 PM | Unregistered Commenterjohn

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