A Little Debunking of the SEC's Records Destruction: "What is a MUI?" & More?

A Little Debunking of the SEC's Records Destruction: "What is a MUI?" & More Yesterday, I blogged about the story sweeping the mass media about how a SEC Enforcement attorney had blown the whistle to Sen. Grassley regarding how the agency had been routinely destroying records relating to MUI's that hadn't panned out for formal investigations. A lot of sexy components to this story, but when you stop and think about it, it seems like a "made for the media" story based on the facts as reported so far. Below are a few of my thoughts (in addition, here's thoughts from Prof. David Albrecht and Bruce Carton). 1. 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 Investigation" – 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. 2. Gary Aguirre's Involvement – One interesting angle is that the complaining SEC lawyer – Mr. Darcy Flynn – is being represented by none other than former SEC lawyer Gary Aguirre, who you may recall was the rabble-rouser who kicked off the whole firestorm over the Pequot/John Mack insider trading fiasco several years ago and ended up getting a big dollar settlement from the SEC to resolve his claim of wrongful and retaliatory termination (with a lot of help from the grandstanding of Grassley & Co.). I guess Gary has been around the block as a SEC whistleblower and maybe he'll be representing all SEC Staffers who bring allegations to light? 3. Some Oddities Do Exist – While my overall sentiment is that there doesn't appear to be anything too nefarious about this situation as reported, it does raise the legitimate question of whether the SEC has been complying with federal record retention laws when it comes to MUIs. I have no idea what those laws require, but presumably they exist (see today's NY Times' article that says the National Archives and Records Administration has written 3 letters to the SEC since July 2010 on the matter) – and it does seem odd that the Enforcement Staff would routinely discard documents relating to MUIs immediately upon closing the matter out. You'd think they'd want to keep them in case a week later another complaint comes in about the same subject matter or company, and the new complaint is convincing that the matter deserves closer scrutiny after all. 4. 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. How Congress Devastated the Congo A member sent this reaction to this NY Times op-ed while I was away: While I do understand and agree with the laudable intentions of its proponents, I believe that the "conflict minerals" section of Dodd-Frank is the worst securities law I have ever seen. I think it is unwise to try to address this issue through a disclosure law. When the NY Times (not The Wall Street Journal) publishes an editorial that states that the law is hurting rather than helping the people it is supposed to benefit, it makes me doubly angry. I do appreciate that many well-intentioned activists in the environmental and social causes communities believe that they should have a way to pressure corporations and their boards to consider their views, some of which I share. The conflict minerals law, however, is a quantum leap from the social activism inherent in much of the Rule 14a-8 process. The law seeks to use the US securities regulatory regime to solve a problem it is ill-equipped to solve, with unforeseen and unintended consequences and unjustifiable costs. That the problem is horrendous does not mean that securities disclosure is the way to address it. Nuggets from "The Advisors' Blog" We continue to post new items daily on our blog – "The Advisors' Blog" – for CompensationStandards.com members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries: – Senate Bill: An End to Tax Breaks for Stock Options? – SEC Commissioners Reject Enforcement Staff Proposal to Settle Clawback Case – Clawbacks: Open Issues for the SEC – Senate Democrats Defend Pay Equity Disclosure Provision – View from the Equilar Conference Summit – Broc Romanek

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One Response to A Little Debunking of the SEC's Records Destruction: "What is a MUI?" & More?

  1. Charles Chaney says:

    MUI is “Matter Under Inquiry” not Matter Under Investigation. The MUI’s that are opened provide “cover” that the staff is busy fighting securities fraud. The MUI’s take mimimal time to open but also provide management with an excuse to “not work on matters” – since their staff is tied up on various matters. SEC staff experience has diminished over the years and I found the newer staff has very little experience in the transactional “nuts and bolts” aspect of securities transactions. Add the fact that SEC management is loath to take on large complex cases preferring “quick hit” cases to pad their STATS and one can readily see how utterly ineffectve the organization has become. The SEC is very heavily weighted in attorneys and empire building managers whose main purpose is not the protection of investors but the protection of the SEC.

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