POGO and ten other good government groups just sent a letter urging Senator Chris Dodd (D-CT) and Representative Barney Frank (D-MA) to address an obscure provision in the financial reform bill that could add an additional layer of secrecy at the Securities and Exchange Commission (SEC).
Depending on how it's interpreted, Section 929I of the Dodd-Frank Wall Street Reform and Consumer Protection Act could carve out broad exemptions allowing the agency to withhold from the public information requested under the Freedom of Information Act (FOIA).
Here's how the SEC justifies the need for the provision, as stated in our letter:
[Chairman Schapiro] argued that registered entities need to be able to provide the SEC with access to sensitive or proprietary information "without concern that the information will later be made public." She further explained that, prior to the passage of the Dodd-Frank Act, "regulated entities not infrequently refused to provide Commission examiners with sensitive information due to their fears that it ultimately would be disclosed publicly." She also claimed that investment advisers routinely refuse to turn over personal trading records of investment management personnel, "instead requiring staff to review hard copies of the records on the adviser's premises," which "materially impacts the staff's ability to detect insider trading activity."
The only problem is:
These arguments do not adequately describe the SEC's existing regulatory authority, and they fail to acknowledge that the Freedom of Information Act (FOIA) already provides sufficient exemptions to protect against the release of sensitive and proprietary information. Furthermore, the SEC has a troubling history of being overly aggressive in withholding records from the public.
The letter goes on to outline five reasons why Congress should repeal this provision, or at least curtail the SEC's authority to withhold vital information from the public. They are:
- Contrary to claims made by SEC Chairman Mary Schapiro, existing FOIA exemptions already offer sufficient protections for trade secrets and commercial and financial information, the sort of information that registered entities (i.e. funds that will now be regulated by the agency) fear will be released publicly.
- Whether you're measuring the agency's FOIA release rate, its compliance with Executive Order 13392 and the OPEN Government Act, or the response to inspector general recommendations for correcting glaring deficiencies in FOIA processing, the SEC's track record with FOIA is abysmal.
- While Chairman Schapiro has offered a solution—issuing and publishing guidance to staff that ensures the provision is used only as intended—the Chairman's solution is not adequate.
- The SEC already has the authority to get any information that is withheld from the agency by registered entities, including the hedge funds, private equity funds, and venture capital funds that will now be regulated by the SEC.
- Questions remain about how the SEC will interpret other blanket FOIA exemptions in the Dodd-Frank bill.
We'd encourage you to take a look at the letter, which provides additional background on these five items.
-- Bryan Rahija