SEC Accused of Hiding Wall Street Wrongdoings

Senator Chuck Grassley (R., Iowa) has asked the Securities and Exchange Commission to account for serious allegations that case-related document destruction may have compromised enforcement in cases involving activity at large banks and hedge funds during the financial crisis.

(August 18, 2011) — US Senator Charles Grassley (R., Iowa) has asked the Securities and Exchange Commission (SEC) to respond to allegations that it destroyed documents and compromised enforcement cases involving activity at large banks and hedge funds during the height of the financial crisis in 2008.

The US regulatory agency is being accused of destroying files from initial investigations of firms including Goldman Sachs Group, Wells Fargo, Bank of America, Deutsche Bank, Lehman Brothers, SAC Capital Advisors, and Bernard Madoff Investment Securities.

“From what I’ve seen, it looks as if the SEC might have sanctioned some level of case-related document destruction,” Grassley said in a statement. “It doesn’t make sense that an agency responsible for investigations would want to get rid of potential evidence. If these charges are true, the agency needs to explain why it destroyed documents, how many documents it destroyed over what timeframe, and to what extent its actions were consistent with the law.”

According to Grassley’s statement posted on his website, his investigation of the US regulatory body comes after an agency whistleblower sent him a letter describing “the SEC’s unlawful destruction of the federal records generated in at least 9,000 informal investigations.” The documents are said to support “matters under inquiry,” which is the first step in investigating a case that may or may not result in a formal investigation.

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After reviewing the whistleblower’s letter and other related documents, Grassley sent a letter to the SEC, requesting a full account of any document destruction policies, including whether the allegations are correct that the SEC destroyed documents related to major Wall Street banks and hedge funds.

In a letter to SEC Chairman Mary Schapiro, Grassley wrote: “If (the whistleblower’s) allegations are correct, the intentional destruction of at least 9,000 MUIs would appear to greatly handicap the SEC’s ability to create patterns in complex cases and calls into question the SEC’s ability to properly retain and catalog documents.”

Click here to read Grassley’s letter to the SEC chairman.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

UTIMCO Heightens Hedging on Euro-Debt, Inflation Fears

The University of Texas Investment Management Co. is expanding derivative use to hedge against a euro-region debt default or a collapse in the dollar, while simultaneously upping limits on commodities including gold, Bloomberg has reported.

(August 17, 2011) — Citing concerns on euro-debt and inflation, Texas’s public university endowment has boosted hedging.

The drive to increase the use of more aggressive hedging at the university endowment comes after a study from the management company showed that the fund may lose a fifth of its value from a euro-region default or a crisis in the dollar. As the second-largest US college fund, the endowment has approved changes to let its managers at University of Texas Investment Management Co. (UTIMCO) spend up to 0.75% of assets on hedging risks, up from 0.25%, Bloomberg has reported.

“We are in a very uncertain investment environment,” Bruce Zimmerman, president of UTIMCO, said at the University of Texas System Board of Regents meeting today, according to the news service. “The lack of clarity of the direction is as opaque as many of us have ever seen.”

He added that only Harvard University’s $27.6 billion endowment, the largest for a US school, spends proportionately more on hedging among big collegiate funds.

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Last month, the five endowment funds of the University of Texas — which total more than $20 billion — revealed that it had returns of about 20% for the 12 months ended June 30. The university’s endowments totaled $20.3 billion as of May 31.

Last year, the University of Texas made headlines when — amid fears and expectations of turbulent international financial markets and high inflation — it invested $500 million in gold, a commodity whose value usually only grows due to fears of inflation.

“The $500 million commitment in gold by UTIMCO was a tactical allocation decision made by management,” Zimmerman told aiCIO last July. “UTIMCO has been laddering in this exposure over a number of months. The investment in gold was a hedge against lack of confidence in financial assets due to lack of government fiscal and monetary discipline.”

Still, the fund’s gold purchase equated to a small fraction of its overall value.

Related article: The UTIMCO Bullion Buy: Prescient, or Political?

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742