Motive: to destroy Securities and Exchange Commission files?

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The SEC regulates the U.S. stock and securities markets, and investigates possible breaches of securities laws. A common CT claim is that shadowy conspirators destroyed WTC 7 in order to destroy SEC investigation files that were stored there. Jim Fetzer made such a claim in this Hardfire debate with me, hosted by Ron Wieck (show 3 of 3).

The conspiracists don't explain why anyone would use such a hilariously complex plot, so fraught with the danger of being caught, to destroy some files. They also don't understand the concept of off-site backups of important files, which is common practice with financial firms and those who investigate them.

The conspiracists also fail to point out any examples of major investigations that were significantly impeded or dropped due to destroyed files.

from New York Lawyer, September 14, 2001

"Clearly what happened was a severe blow," Wayne Carlin, the SEC’s Northeast regional director, told the Washington Post. "It will slow us down, and we will need some amount of time to recover."

The office, which enforces SEC regulations, lost files on about 300 pending investigations, including a major inquiry into the manner in which investment banks divvied up hot shares of initial public offerings during the high-tech boom.

Mr. Carlin said there were no plans to drop any pending matters. "We lost a lot of stuff, though some of it is reconstructible," he said. "Anybody who is under our investigation would be making a mistake if they thought they were in the clear."

The SEC will probably be able to get new copies of documents from the parties that turned them over initially, Mr. Carlin said.

Barry Barbash, a partner with the New York and Washington, D.C. offices of Shearman & Sterling and former director of the division of investment management at the SEC, said that most of the securities firms have back-up systems.
"It’s really the [SEC’s] internally generated notes and correspondence that will prove most problematic," Mr. Barbash said."

"SEC & EEOC: Attack Delays Investigations"
By Margaret Cronin Fisk, National Law Journal, September 17, 2001

Additional details emerged Friday about the effect of the collapse of 7 World Trade Center on investigations being conducted by the New York offices of the Securities and Exchange Commission and the Equal Employment Opportunity Commission, both of which were housed in the building.
The SEC has not quantified the number of active cases in which substantial files were destroyed. Reuters news service and the Los Angeles Times published reports estimating them at 3,000 to 4,000. They include the agency's major inquiry into the manner in which investment banks divvied up hot shares of initial public offerings during the high-tech boom.

The EEOC said documents from about 45 active cases were missing and could not be easily retrieved from any backup system. One of these cases was a sexual harassment charge filed on Sept. 10 against Morgan Stanley, one of the prime corporate victims of the World Trade Center disaster.

A statement from the commission said that "we are confident that we will not lose any significant investigation or case as a result of the loss of our building in New York. No one whom we have sued or whose conduct we have been investigating should doubt our resolve to continue our pursuit of justice in every such matters."

But the short-term problems will be immense, said Gregory Joseph of New York's Law Offices of Gregory Joseph.

"Court papers can largely be reconstituted, but work product has to be reconstructed," he said. "This will cause delays in court and will require significant reduplication of effort." Some data, he added, "won't be recreatable."

"Ongoing investigations at the New York SEC will be dramatically affected because so much of their work is paper-intensive," said Max Berger of New York's Bernstein Litowitz Berger & Grossmann. "This is a disaster for these cases."

"The SEC will have some difficulty, but the bounce-back will come relatively easily," predicts Harvey Goldschmid, Dwight professor of law at Columbia University and former general counsel of the SEC. "It will throw things off for a period of time, but most of what's important can be regained. They will have to reconstruct these documents. But most of this was backed up or in Washington. They've lost some transcripts but even they're available."



"Within two days of the attack, we had retrieved all documents stored electronically and had commenced a review of every single investigation and case currently underway in the office with the twin aims of ensuring that we do not miss any imminent deadlines and of developing a plan for completing our investigations and cases in timely fashion. While our review has not been completed, we are optimistic that we will not lose any significant investigation or case as a result of the loss of our building."

"There also will not be any serious long-term impact on the Commission’s oversight of securities firms located in the New York area. The Commission’s records related to examinations of all securities firms are maintained electronically in a central database, and were unaffected by the tragedy. Electronic copies of examination reports and deficiency letters are maintained off-site for investment advisers, investment companies, broker-dealers and transfer agents. Records relating to open examinations will be reconstructed from records that exist at registrants’ offices and from other sources."

Comments on these issues from JREF forum member Randy Mott:
"These assertions about what was lost and its significance were done on a speculative basis, right after the disaster. By 2002, some cases were obviously affected. The index to documents in a Rite-Aid litigation matter was lost (the original documents all survived). The Motel 6 case settled with major fines, after the SEC got the court to order the defense counsel to assist in reconstituting records. The Street, September 9, 2002. (online).

That article commented: 'SEC officials won't discuss how many cases may have been impacted by the terror attacks, but they claim the lost information was limited to two weeks' worth of data stored on the agency's computers that hadn't yet been backed up. But it's clear from talking to securities lawyers who practice before the SEC that things haven't gone as smoothly as the agency would like the public to believe.'

I personally know in big litigation and investigations all of the documents are copied at least twice (three sets with the original) and then numbered (Bates). They can be scanned into electronic files in the case has the budget. Single copies of records would be rare, except in small cases or brand new investigations. The Rite Aid and Motel 6 stories verify this experience. The SEC also has a rule requiring that email by archived to back-up storage.

There has been no evidence that Enron or any of the major cases have been impacted by the WTC7 records loss. It is difficult to hypothesize how someone could assume that destroying the building and its contents would destroy a government's investigation or lawsuit. Besides normal backup procedures, the retention of copies produced to the SEC by defendants and their lawyers, any regional case would have to have key stuff submitted to SEC HQ in any event.

It seems very unlikely at best that a motive for WTC7's destruction can be constructed out of this situation."