Earl Ofari Hutchinson's take on the politics of the day
In an exclusive interview on The Hutchinson Report Newsmaker Hour with host Earl Ofari Hutchinson on KTYM 1460 AM Los Angeles on September 9, Former Securities and Exchange Commission Investigator Gary Aguirre.
EOH: Regarding the Securities and Exchange Commission [SEC], what did they know, when did they know it and how long did they know it?
GA: Let me clarify one point. I can speak with you to the extent of only information that is public, and there is considerable information now public. I sent a letter to the chairman of the SEC informing her that Mr. Flynn thought the existing directive to destroy records was unlawful because it was requiring the destruction of federal records, which the agency was obligated to preserve. I received a response in which its general counsel stated that they were putting a freeze on the destruction of records given Mr. Flynn’s objection.
EOH: The SEC says that records must be preserved for 25 years or until approved for destruction. It’s not what Mr. Flynn wants, but what the law says.
GA: Mr. Flynn happened to be the point person. It was not his responsibility to draft the instructions. He had been in that position for a few months when he questioned the policy in 2010. As a consequence, the SEC ceased destroying some of the records. Mr. Flynn is concerned that the policy still violates federal law. It wasn’t Mr. Flynn’s responsibility to make this decision. Mr. Flynn raised the issue out of conscience. Before him, this policy had been in place for 17 years. As a consequence of his objection, the SEC has stopped its destruction of records.
EOH: Can you give us an idea of the companies being looked at?
GA: The SEC is contending that MUI’s [Matters Under Investigation] are not investigations. Records in the SEC says MUI’s are preliminary investigations and are on the schedule. There have been articles which state we are not only talking about preliminary investigations, but also formal investigations. Records of both types have been destroyed. In an article in Rolling Stone Magazine it states there was a destruction of 9,000 MUI’s. A number of investigations involved Goldman Sachs, Morgan Stanley, Bank of America; the usual suspects involved in the financial crisis, as well as Madoff. We are talking about investigations of the folks that brought us the financial crisis of 2008.
EOH: Isn’t there a congressional oversight committee in both the Senate and the House? When did they learn about this?
GA: I don’t know. We informed Senator Grassley, ranking member of the judiciary committee, in July and he has been very active since then. The same information has been provided to the banking committee which has direct responsibility of SEC oversight. I’m looking forward to seeing what they are going to do. In the House it is the Financial Services Committee that has` direct oversight of the SEC. . I have not heard from them. Madoff was a small piece of where the SEC failed. We are looking at two types of conduct; the massive leveraging involving the big banks and mortgage securities, and the fraud in relation to that. The SEC had two major failures; the direct responsibility of monitoring five banks, and each bank was a major cause of the financial crisis. Also it had the responsibility for uncovering fraud in the marketplace. These are the same two components that gave us the crash in 1929, which was the reason the SEC was created; to keep an eye on Wall Street. It has failed to perform those two tasks and now a large percent of records it was supposed to keep have been destroyed.
EOH: Could you talk about the SEC Chairman’s involvement in the current violations?
GA: We’re talking about the current chairman, Mary Schapiro, as well as the prior chairman. There are two theories on how the SEC violated the Federal Records Act which requires it to maintain and preserve federal records of investigations. One is that many of these records were already on a schedule the SEC had filed with another agency which required all investigative records be preserved for 25 years. The second theory which the SEC is floating, “They are not on the schedule, we just forgot to file the schedule for the last 20 years.” Who broke the law by not filing a schedule for authorization? The federal statute provides that the head of each agency shall submit schedules proposing the disposal of specified records.
EOH: In any business, that would be grounds for firing. Has there been any move in that direction?
GA: Mr. Cox has the responsibility for finding out why the schedule was not filed, and I understand he is conducting that investigation now. How many of us would be excused if we forgot to file our income tax return, or forgot to get our drivers license? It’s not a defense.
EOH: They didn’t do their job to make sure all investigative material was preserved, but they still hold their jobs. What do you make of this?
GA: That’s the $64 question. I think that needs to be answered by Congress, in particular the by the congressional committees that have oversight of the SEC. We need a formal investigation by the Banking Committee and the House Financial Services Committee.
EOH: Have you had any reaction or response from President Obama’s Administration?
GA: No, I have not. The key issue is accountability. If we don’t have accountability for what happened in 2008, it can and will happen again. If those on Wall Street who walked away with 10’s of millions of dollars get away with it, what is going to prevent it from happening in the future? It’s much easier to walk away if we shred the documents.
EOH: There is suspicion that the SEC is in bed with the industry they are regulating.
GA: You have to look at it in a different light to grasp the virus that has affected this agency. Suppose the DEA regularly hired drug kings to rotate in and out of its senior executive positions. Or the military rotated Al-Qaeda in and out of executive positions. The public outcry would be deafening. Yet the SEC, an agency created to keep an eye on Wall Street, the policeman at the corner of Wall Street, has been compromised and is working for the other side. Until that gets straightened out, we are destined to have the same kind of financial crisis that we had in 2008.