Last week I wrote (GRATA’s Non-Grata News) about Senator Chuck Grassley’s (R-Iowa) inquiry into the SEC destruction of evidence. Most journalists and bloggers have led with splashy headlines. However, there have been a few voices of sound reason, such as Broc Romanek of CorporateCounsel.net and Tracy Coenen of The Fraud Files Blog.
Much discussion has assumed that valuable evidence is being destroyed when the SEC discards MUI (matters under investigation). This is not necessarily so, as Broc Romanek explains in “A Little Debunking of the SEC’s Records Destruction: What is a MUI?“
What is a MUI? - To best understand what the hubbub is all about, it’s essential that one knows exactly what a MUI is. A MUI – stands for “Matter Under Inquiry” – is simply a database entry by a SEC Enforcement Staffer anytime a Staffer comes across anything remotely suspicious. It plants a flag for the rest of the SEC Staff to know that someone else came across something about the same incident/person – this enables the Staff to avoid duplication of effort and allows for coordination. In the vast majority of cases, the MUIs are really nothing at all – some Staffer read a newspaper article perhaps that sounded a little curious and inputted it into the database in case another Staffer comes across something more suspicious.
60-Day Lifespan for MUIs - Note that under current SEC Enforcement policy, a MUI has a maximum life span of only 60 days (unlike the old days when I was there when I think the lifespan was indefinite). Within the first 60 days, the Staff must either close the case or convert it to an “investigation” (either formal or informal), or the computer system automatically converts it to an “investigation” at 60 days. Once it becomes an investigation (regardless of how), I assume the record retention policy is a bit more strict. For general and official background on MUIs and their conversion to investigations, see Section 2.3 of the Enforcement Manual.
Even if the MUI is closed, a description of the “evidence” destroyed is maintained, making it easy to reconstruct the file if the need ever arises.
In conclusion, SEC lawyer Darcy Flynn (the whistle blower) and Senator Grassley (the politico), are blowing smoke despite there being no fire. For those of you who have been napping, go back to sleep.
Debit and credit – - David Albrecht
Sounds a bit like throwing away your ‘toss’ file at the end of an audit or trashing notes from a cold call from a potential client that didn’t go anywhere.
Destruction? Sure. Of what? Nothing valuable.