Federal Records Act Lawsuit Seeking to Make the SEC Reconstruct About 9,000 Enforcement-Related Documents is Dismissed

The U.S. District Court for the District of Columbia has decided to dismiss the last two counts in the Citizens for Responsibility and Ethics in Washington’s Federal Records Act lawsuit against the Securities and Exchange Commission. The public interest group wants to make the SEC reconstruct about 9,000 documents related to certain enforcement probes.

Judge James E. Boasberg said that to the degree that the act’s section 3106 mandates an affirmative duty to act when I comes to destroying records, the Commission has not taken advantage of its discretion in taking internal remedial steps and, as a result, has satisfied any “duty to imposed.”

It was in August 2011 when allegations surfaced that the SEC may have improperly destroyed files related to MUIs—matters under inquiry. Sen. Chuck Grassley (R-Iowa) began questioning the agency after a whistleblower drew the matter to his attention. SEC General Counsel Mark Cahn then proceeded to order the Enforcement Division to cease from destroying documents from closed cases until notice was given to do otherwise. Then, after a probe, then-SEC Inspector General H. David Kotzlater determined that the division did not behave improperly when it got rid of such files. CREW, however, went on to file its Federal Records Act case in the hopes of obtaining a declaratory judgment noting that the destruction of the documents had violated the FRA.

Last May, the district court threw out three of the plaintiff’s causes of action. Two causes, however, were allowed to move forward: one seeking a declaratory judgment that would make the SEC act to restore the destroyed documents and the other for a writ of mandamus demanding the same relief. Now, the court has dismissed both causes of action.

The court noted that section 3106 of the FRA provides that should records be unlawfully taken away, modified, defaced or destroyed, an agency head has to let the Archivist know, and if unlawful removal does happen, then the head has to go to the Attorney General and ask that an action be initiated so the records can be covered.

Counter to CREW’s argument, the SEC, however, contended that the responsibility to ask the AG to make such an action is only applicable to records that were taken out of an agency’s custody and not ones that were destroyed. The district court sided with the regulatory agency, noting that legislative history cannot override the plain meaning of a statute. (Section 3106’s second clause solely refers to documents that have been removed, which is only what would trigger the mandatory enforcement duty.)

In regards to the second claim, the court said that mandamus is proper as long as the defendant possesses a clear duty to act, the plaintiff has “a clear right to relief, “ and there is no other remedy that would suffice. Therefore, as the plaintiff cannot demonstrate that the SEC had a “clear duty to act” and it has an adequate remedy under the Administrative Procedure Act, said the court, the defendants are entitled to summary judgment.

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