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Does new financial law block FOIA requests at SEC?

For an agency focused on transparency, the SEC has nothing to brag about when it comes to Freedom of Information Act requests. A recent audit by the agency's inspector general found that, in responding to FOIA requests, "the Commission's overall rate was significantly lower when compared to all other federal agencies."

But it may not be time to take up arms over the latest charge by Fox Business News that "the Securities and Exchange Commission no longer has to comply with virtually all requests for information releases from the public" under the new financial regulation law.

Here's the background: Fox is trying to get documents from the SEC related to why the agency failed to catch the Bernard Madoff and R. Allen Stanford frauds. These failures cost thousands of investors billions of dollars, and the agency probably should comply with Fox's request, even if it means the commission would need to vote to override SEC confidentiality rules.

The new FOIA standards at the SEC came to Fox's attention after agency lawyers cited them in a conference call with the cable channel's lawyers Tuesday. But the changes may not be as expansive as Fox suggests.

While, as Fox notes, the law exempts the SEC from disclosing records derived from "surveillance, risk assessments, or other regulatory and oversight activities," this only concerns documents obtained through examinations of broker-dealers and investment advisers -- periodic or targeted reviews of financial firms.

People and organizations can still use FOIA to obtain a range of SEC information, such as inspector general reports; communications with Congress and the business community; and officials' calendar, salary and conflict-of-interest information.

Information from investigations into potential wrongdoing has never been obtainable through FOIA.

John Nester, SEC spokesman, said:

"We are expanding our examination program's surveillance and risk assessment efforts in order to provide more sophisticated and effective Wall Street oversight. The success of these efforts depends on our ability to obtain documents and other information from brokers, investment advisers and other registrants. The new legislation makes certain that we can obtain documents from registrants for risk assessment and surveillance under similar conditions that already exist by law for our examinations. Because registrants insist on confidential treatment of their documents, this new provision also removes an opportunity for brokers, investment advisers and other registrants to refuse to cooperate with our examination document requests."

So, consider this. If the SEC's exam team decides to take a look at a hedge fund's records, it may need to contact the hedge fund's broker for data on trades. That data could be subject to FOIA under the old law, and the broker, fearful that the private data would become public, might refuse to hand over the data.

Under the new law, such data is not subject to FOIA. The SEC hopes that, since it will be seeking data and documents from a broad range of financial players, it won't face resistance from firms concerned that their data might leak to the public through FOIA.

By Zach Goldfarb  |  July 28, 2010; 2:59 PM ET
Categories:  SEC  
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Comments

And what is the rationale for limiting the scope of publicly-disclosable information? Why on earth does it make sense to disclose LESS?

Posted by: Anonymous | July 28, 2010 6:14 PM | Report abuse

The basic concern is this.

If the new regulation is used to take over or split a part a at-risk company, what will we (and you) be able to learn about why and what lead up to the decision? Will the SEC simply be able to say, "No"?

I think we all understand the SEC spin about confidentiality. Fox mentions that that information is already covered under general Congressional rules through the Office of Management and Budget and this wording transfers that decision power to the SEC.

You seem to believe, that e-mails between regulators and the company, minutes from meetings, arguments over misinterpretation or other documentation is still open to FOIA. I hope to, we shall see. As you mention, they already abuse the privileges more than other agencies today.

Generally, I think most people are pretty confident that our government does not like press and public oversight. Hence the need for FOIA to clarify that role in the first place. They are especially restrictive as it relates to their role in the current collapses. New language to harden that line must allow for oversight from outside of the agency itself. This would seem to reverse that direction. The SEC also believes the new language gives them more power (why else sight it) and that itself is scary.

For full disclosure, I am against this bill and the SEC having the ability to make many of these decisions without Congressional approval. I see it as a violation of Congresses role and abdicating that role to unelected officials in the Executive branch. The SEC reaction to it, confirms those assumptions.

Additional oversight by the SEC may have been necessary (but 2000+ pages seems a bit excessive). I am pretty convinced the authority to collect the information already existed and was improperly used (or ignored). The current use of FOIA should be able to let us find out. The new rules may not.

Posted by: editedforbias | July 29, 2010 10:06 AM | Report abuse

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