SEC loses short-lived FOIA exemption in financial reform law

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In a victory for advocates of government transparency, Congress has voted to repeal a Freedom of Information Act (FOIA) exemption for the Securities and Exchange Commission that was tucked inside the massive financial reform law a few months ago.

The SEC has always been exempt from disclosing its own internal compliance or audit records in response to FOIA requests. The Dodd-Frank reform law gave the SEC a broader FOIA exemption covering trading algorithms, strategies, and records of companies reluctant to share that information with SEC because of fears that it might become public.

During Congress’ crowded and brief legislative session before lawmakers leave Washington in October to campaign, both chambers voted to strike the FOIA exemption. President Barack Obama is expected to soon sign it into law.

Angela Canterbury, of the Project on Government Oversight advocacy group, and other critics cheered the speedy legislative action, saying that the SEC already has a dismal record responding to FOIA requests. While most federal government agencies respond with information in nearly 42 percent of FOIA requests, the SEC fulfills only 10.5 percent of FOIA requests, according to a review last year by the SEC’s inspector general.

The SEC already has the power to subpoena witnesses and to require companies it regulates to turn over records, Canterbury said. “If these entities fail to comply, the SEC has the authority to suspend them, impose significant monetary penalties, and refer cases to the Department of Justice (DOJ) for possible criminal proceedings.”

A bipartisan group led by Democrats Patrick Leahy of Vermont and Ted Kaufman of Delaware and by Republicans Charles Grassley of Iowa and John Cornyn of Texas crafted legislation to repeal the FOIA exemption – known as Section 929I -- from the financial reform bill. Their bill relies on an existing provision known as Exemption 8 to protect confidential information from release.

SEC Chairman Mary Schapiro unsuccessfully sought to keep the expanded FOIA exemption, calling it “central to our ability to develop robust examination programs that better protect investors.” In testimony earlier this month to the House Financial Services Committee, Schapiro said Exemption 8 applies only to financial institutions, and courts have not yet determined if investment advisors, broker-dealers, credit rating agencies, self-regulated organizations, and clearing agencies regulated by the SEC fall into the category of “financial institution.”

ABOUT THE DATA:

What: SEC examinations of investment advisors, broker-dealers, credit rating agencies, self-regulated organizations, and clearing agencies.

Availability: Subject to a Freedom of Information Act (FOIA) request now the Congress changed the language of the Dodd-Frank law to remove a broad SEC exemption from FOIA.

The Data Mine is a joint project of the Center for Public Integrity and the Sunlight Foundation

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