* Grassley asks SEC to explain document destruction
* Grassley: SEC whistleblower came forward about records
* Whistleblower says records pertained to investigations
* Says records related to Madoff, Goldman Sachs probes
(Updates to add an SEC quote from spokesman John Nester)
By Sarah N. Lynch
WASHINGTON, Aug 17 A U.S. senator is asking
securities regulators for answers after an internal
whistleblower alleged the Securities and Exchange Commission
has destroyed over 9,000 investigation-related records.
Senator Charles Grassley, the ranking Republican on the
Judiciary Committee, sent a letter on Wednesday asking SEC
Chairman Mary Schapiro about the alleged destruction of
so-called "matters under inquiry." MUIs are preliminary
documents the SEC compiles when it receives evidence of
possible securities violations.
In his letter, Grassley says that Darcy Flynn, a 13-year
veteran of the SEC, had alerted him to the problem.
Flynn told Grassley the SEC has destroyed files on
important, high-profile cases including Bernard Madoff, Goldman
Sachs (GS.N) trading in AIG (AIG.N) credit-default swaps,
alleged frauds at Wells Fargo (WFC.N) and Bank of America
(BAC.N), and insider-trading probes at Deutsche Bank
(DBKGn.DE), Lehman Brothers and the hedge fund SAC Capital.
"From what I've seen, it looks as if the SEC might have
sanctioned some level of case-related document destruction,"
Grassley said in a statement.
"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
timeframe, and to what extent its actions were consistent with
SEC spokesman John Nester said that the agency does retain
records of its matters under inquiry, but noted that "not every
document that comes into an agency's possession in the course
of its work must be retained." He declined to comment further
in advance of the SEC's response to Grassley.
In his letter, Grassley asks the SEC to discuss whether it
routinely destroys documents and what its legal obligations are
to retain certain records.
He asked to receive the information by the end of the
(Reporting by Sarah N. Lynch, editing by Bernard Orr)