The Summa deals with all matters related to financial reporting (i.e., financial statements) and auditing, so it’s natural to cover the Great Regulator of All Things Accounting (GRATA). The news spreading today is very non grata (grata means “welcome,” so “non grata” means “not welcome”), at least to the Securities and Exchange Commission (SEC).
Yesterday, August 17, 2011, Senator Chuck Grassley (R-Iowa) sent a letter to SEC Chair Mary Schapiro. Today it has been reported in the Wall Street Journal (“SEC Destroyed Files on Wall Street Probes, Agency Lawyer Says” by Liz Moyer and Jessica Holzer), New York Times (“S.E.C. Files Were Illegally Destroyed, Lawyer Says” by Edward Wyatt), The Rolling Stone (a conspiratorial article “Is the SEC Covering Up Wall Street Crimes” by Matt Taibbi) and blogs such as TheCorporateCounsel.net (“Not a Good Headline” by Broc Romanek).
After reading through everything, I conclude this issue is all smoke with no fire.
Senator Grassley is the ranking member of the Senate Committee on the Judiciary, meaning that he’s the longest serving Republican. He’s also a lawyer. But more than anything, he’s a politician.
In his letter, Senator Grassley passed along allegations from Darcy Flynn, a 13 year veteran of the SEC enforcement division and now in the SEC’s document disposition office. Flynn’s allegations concern the disposition of files, once a matter under investigation (MUI) has been concluded with a decision not to pursue. Prior to 2010, the files were destroyed as per policy (it’s not a bad policy). Flynn brought up the issue in 2010, policies were changed, and the files now are retained for a while according to federal document retention policies. This is a moot issue.
Possibly Flynn is taking heat at the SEC. He has hired a lawyer, seeking whistle-blower protection. His note to Grassley could be part of a strategy of hoping that publicity provides protection (it doesn’t). Grassley probably perceives the possibility of short-term political gains. So, he wrote a letter to Schapiro which was bound to provoke attention grabbing headlines, and it did. [My first thought was to wonder what the SEC was covering up. It turns out there was nothing being covered up.]
Grassley’s letter scores points on many political scorecards. First and foremost, it embarrasses Democrats. The SEC is controlled by Democrats. Under Schapiro’s direction, the SEC faithfully has carried out Obama’s policies. Second, it hinders the effective implementation of Dodd-Frank. I’m no fan of Dodd-Frank, a pointless, horrible piece of legislation. If Grassley embarrasses one of Dodd-Frank’s key enforcement agencies, Dodd-Frank’s eventual effectiveness is lessened. Third, the SEC desires a bigger budget, and that is under consideration. Embarrassing the SEC and invoking names such as Madoff, Goldman Sachs, and Lehman brothers (all publicly perceived failures of SEC enforcement) is a shot across the bow, announcing that no budget increases are about to be received any time soon.
The media seems to be abuzz about these allegations, but I see it only as another example of political infighting and nothing to be concerned about.
Mary Schapiro, you don’t deserve this cheap shot. Take the high road on this one.
Debit and credit – - David Albrecht