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.
July 28, 2010; 2:59 PM ET
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