Transparency Advocates Protest SEC's New FOIA Exemption

A provision in the financial regulatory reform act drew criticism over the charge that it unnecessarily exempts Securities and Exchange Commission (SEC) information and records from federal Freedom of Information Act (FOIA) requests.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. Law No. 111-203, was signed into law on July 21, 2010 and lists as one of its purposes to "promote the financial stability of the United States by improving accountability and transparency in the financial system." However, journalists and open government advocates have seized upon Section 929I of the act, which protects the "confidentiality" of materials submitted to the SEC, and allows the agency to refuse to comply with FOIA requests that seek records and information related to the SEC's "surveillance, risk assessments, or other regulatory and oversight activities."

Fox Business Network (FBN) raised concerns about the FOIA implications of the act, reporting on July 28 that the SEC had invoked the 929I provision the previous day in rejecting FBN's FOIA request seeking records related to the Bernie Madoff case. In the July 28 online story, Steven Mintz, an attorney for FBN, called the provision a "backroom deal that was cut between Congress and the SEC to keep the SEC's failures secret. The only losers here are the American public." FBN reported that SEC spokesman John Nester defended the language of the act, saying that the provision was necessary to protect businesses that register with the SEC from the release of information they may not want made public. In a July 29 post on the website for the Reporters Committee for Freedom of the Press, Nester said the 929I provision "protects highly sensitive and proprietary information such as customer account information and trading algorithms."

On August 3, a consortium of 10 government transparency groups, including the American Library Association, Citizens for Ethics and Responsibility in Washington, Project on Government Oversight, OMB Watch (which monitors the White House Office of Management and Budget), and the Sunlight Foundation, sent a letter to Sen. Christopher Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.), co-sponsors of the Dodd-Frank Act. In the letter, the groups called for the immediate repeal of 929I, characterizing it as overly broad and "unnecessary." The letter also pointed to more extensive concerns with the SEC's record on openness, highlighting a 2009 audit conducted by the SEC Office of Inspector General (OIG), which uncovered a wide range of problems related to the SEC's FOIA operations and concluded that the SEC's FOIA release rate was "significantly lower when compared to all other federal agencies."

The letter to Dodd and Frank argued that transparency in the wake of the recent financial crisis was essential. "The SEC's ongoing effort to withhold vital records from the public undermines the spirit of the transparency reforms in the Dodd-Frank Act, and flies in the face of President Obama's guidance instructing agencies to adopt a 'presumption in favor of disclosure, in order to renew their commitment to the principles embodied in FOIA, and to usher in a new era of open Government,'" the letter said.

In a July 29 blog post on the website of the Project on Government Oversight, reporter Michael Smallberg wrote that problems with the act may be broader than initially thought, pointing to a provision in Section 404 that "makes any information, reports, documents, or records provided by investment advisers of private funds to the SEC and the Financial Stability Oversight Council non-public."

Smallberg's post and the transparency groups' letter argued that exempting the SEC from disclosure under FOIA is unnecessary because the FOIA already carves out sufficient exemptions for proprietary and sensitive information. Exemption 4 of the FOIA applies to "trade secrets and commercial or financial information obtained from a person and privileged or confidential," and Exemption 8 applies to matters that are "contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions." The federal FOIA is codified at 5 U.S.C. § 552.

"If nothing else," Smallberg wrote, "the SEC's ongoing efforts to withhold information in the Fox Business lawsuit and other cases would appear to undermine the overall spirit of the Wall Street reform bill, which seeks to improve transparency and accountability across the financial system."

Two bills have been introduced to repeal 929I: H.R. 5970, on July 29, sponsored by Rep. Ron Paul (R-Texas), and H.R. 6038, on July 30, sponsored by Reps. Darrell Issa (R-Calif.), Edolphus Towns (D-N.Y.), and Spencer Bachus (R-Ala.). Issa, the ranking member on the House Committee on Oversight and Government Reform, was an early critic of the 929I provision. In a July 28 post to the Oversight and Government Reform website, Issa asked the Obama administration to justify the 929I provision. "For all their talk about transparency and accountability, the one thing that the President's financial reform bill has done is allow the very regulatory body that failed to catch Allen Stanford's fraud and Bernie Madoff's ponzi scheme to operate in secrecy, without ever having to be held accountable to the American people," Issa said. "More and more the American people are seeing that transparency and accountability to the Obama Administration is a rhetorical illusion."

In an August 2 post on, Josh Gerstein quoted Frank as saying that he was surprised by the wave of criticism that accompanied the 929I provision. "[The amendment] was in the text that we were working on from the beginning," Frank said. "Darrell Issa has raised questions about it, but he sat there for two weeks and didn't offer an amendment ... That was why we had a public conference."

- Ruth DeFoster
Silha Research Assistant



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This page contains a single entry by cla published on September 10, 2010 3:32 PM.

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