The head of the U.S. Securities and Exchange Commission today insisted that language tucked inside the massive financial reform law does not give the agency a broad exemption from Freedom of Information Act requests, as reported by Fox Business Network.
“This provision does not provide a ‘blanket’ SEC exemption from FOIA and is not designed to protect the SEC as an agency from public oversight and accountability,” SEC Chairman Mary Schapiro said in separate letters to the chairmen of the House Financial Services Committee and the Senate Banking Committee, which oversee the investor protection agency. A copy of the letter sent to the Rep. Barney Frank, the Massachusetts Democrat who chairs the House panel, was obtained by the Center for Public Integrity.
Journalists and lawyers alike have been scrambling to clarify the brief provision, known as Section 929I, since Fox Business Network reported on Wednesday that the SEC cited the new law in rejecting a FOIA request by the network.
“I am writing to address recent assertions that section 929I…was ‘hidden in the financial reform legislation and ‘exempts’ the SEC from the Freedom of Information Act,” Schapiro said in the letter. “As you know, these assertions are false.”
The FOIA exemption in the new law has been sought by the SEC for the past four years so that the agency can obtain sensitive and proprietary records from companies that have refused to turn over the information because of fears that it might be subject to FOIA requests and become public, Schapiro said. Such information includes trading algorithms, internal audit reports, trading strategies, portfolio manager trading records, and exchanges’ surveillance specifications, the letter said.
The SEC has always been exempt from disclosing “any internal compliance or audit records” to the public under the Investment Company Act of 1940, which was incorporated into the 1960 FOIA law.
But Section 929I of the new law changes that wording to read that the commission if exempt from disclosing “any records… if such records or information have been obtained by the commission for… surveillance, risk assessments or other regulatory and oversight activities.”
Lucy Dalgish, executive director of the Reporters Committee for Freedom of the Press, said the language of the new law is broad and worrisome. “The plain language of the amendment appears to go beyond that intent,” she said. “Can I explain it? No. Am I concerned? You bet I am.”
In her letter, Schapiro said the language may not be used by the SEC to withhold information from Congress or a court. “To address any uncertainty about how we will use Section 929I, I am asking the commission to issue and publish on our website guidance to our staff that ensures the provision is used only as it was intended,” she said.
Daglish expressed concern that the wording of the law will make FOIA requests to the SEC more difficult, saying “our experience with the Federal government agencies is if you give them something, they will run with it.”
Some lawmakers were also surprised by the provision that had been unnoticed in the 2,300-page financial reform law. “I’ve had members of Congress call me to ask ‘what did we do?’” Daglish said.
The FOIA exemption surfaced in the final version of the financial reform legislation and was added by Senate negotiators, according to Steven Adamske, spokesman for the House Financial Services Committee. Adamske said he was taken aback by the uproar since the Fox report. “Where was the concern when it was being voted on?” he asked.
FOIA issues generally fall under the purview of the Senate and House judiciary committees, not the banking and financial panels that overhauled financial regulation.
One member of the Senate Judiciary Committee, Democrat Ted Kaufman of Delaware, even called for Congress to revise the FOIA exemption language. “As written, the exemption throws a cloak over all information received by the Commission from the entities the SEC regulates,” Kaufman said in a Wednesday statement. “It should be reevaluated by the SEC and Congress.”
ABOUT THE DATA:
What: FOIA exemption
Where: Securities and Exchange Commission
The Data Mine is a joint project of the Center for Public Integrity and the Sunlight Foundation.