In a recent letter from SEC Enforcement Director, Robert Khuzami, to United States Senator Charles Grassley, the SEC for the first time said that the destroyed documents did not have any effect on current or future investigations.
In fact, Khuzami said that the SEC saved electronic data allowing them to “connect the dots” for current investigations. Further, the Enforcement Director minimized the value of some of the documents that were destroyed, and said the information could be re-obtained from public information. Nonetheless, Khuzami acknowledged that some of the investigations’ preliminary documents, regarding investigations into major banks and Madoff, were, in all likelihood, destroyed.
However, as Senator Grassley pointed out, the SEC may say the documents were not significant, but no one will ever know since the documents are gone. This was, of course, not the reaction the SEC hoped to obtain from Congress. Instead, the SEC will continue to operate under a cloud regarding the loss of this material.
In short, the SEC needs to provide a credible and appropriate reason for this destruction as well as implement procedures to ensure that it will not occur in the future. Until such time, the SEC should expect continued skepticism over its operations.