SEC FOIA exemption not uncommon, but still poorly done

The FOIA world has been at arms over the past few days over a newly “discovered” Federal FOIA exemption found within the freshly signed Financial Reform Bill. The exemption explicitly exempts the Securities and Exchange Commission from FOIA requests for information relating to “surveillance, risk assessments or other regulatory and oversight activities” and is designed to protected increased surveillance and investigatory powers granted to the SEC in an attempt to guard against future economic problems and recessions. John Nester, an SEC spokesman, summarized this intention, telling the press:

“The new provision applies to information obtained through examinations or derived from that information. 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.”

I personally do not feel comfortable weighing in on the impact of this exemption on the federal FOIA, a topic with which I am less experienced. In addition, I don’t care to weigh in on any of the partisan debate surrounding the exemption, as I believe neutrality is key, especially within open records policies. I will however state that, despite popular opinion, the exemption or at least its intention is not that outrageous or even uncommon amongst state open records laws.

While almost all states exempt information like trade secrets and information which if released might result in unfair trade practices, both exemptions which could in fact cover some of the material the SEC is seeking to protect, many states expand on this by exempting financial investigatory materials. At least the following seven states have exemptions similar to the SEC’s new exemption:

State: Citation: Exemption:
Alaska Alaska Stat. Guidlines for investigations, the release of which could result in avoidance of the law.
Connecticut Conn. Gen. Stat. Chapter 14 Sec. 1-210.5B Freely given financial information, not required to be collected by statute.
Kentucky Kentucky ORA 68.878(e) “Public records which are developed by an agency in conjunction with the regulation or supervision of financial institutions, including but not limited to, banks, savings and loan associations, and credit unions, which disclose the agency’s internal examining or audit criteria and related analytical methods;”
Maryland Maryland Statute 10-616.u Surveillance information.
Oregon Or. Rev. Stat. Chapter 192, 501(9) Records, reports and other information received or compiled by the Director of the Department of Consumer and Business Services under ORS 697.732.(Examinations section)
Virginia VA Code § 2.2-3705.6. Broad reaching trade secrets exemptions targeting numerous specific industries.
West Virginia West Virginia Code 29B-1-4(a)(7) “Information contained in or related to examination, operating or condition reports prepared by, or on behalf of, or for the use of any agency responsible for the regulation or supervision of financial institutions, except those reports which are by law required to be published in newspapers;”

However, while this exemption is not terribly uncommon and is generally granted with a good intention, namely protecting the financial and proprietary information collected from private agencies during regulatory investigations, the current Federal exemption has a few problems.

First and foremost the exemption as written is somewhat broad and poorly constructed. The first exemption found in the law merely applies old FOIA laws to new information gathered by the SEC. The exemption in the law found in Sec 112 (5)(C) states that “(C) FREEDOM OF INFORMATION ACT- Section 552 of title 5, United States Code, including the exceptions thereunder, shall apply to any data or information submitted under this subsection and subtitle B.” Essentially, this exemption is only applying the original exemptions set forth in the FOIA to the newly collected information by the SEC. This is not a broad reaching exemption, but merely a restatement of old exemptions.

However, the addition of Section 919I states,

Except as provided in subsection (f), the Commission shall not be compelled to disclose records or information obtained pursuant to section 17(b), or records or information based upon or derived from such records or information, if such records or information have been obtained by the Commission for use in furtherance of the purposes of this title, including surveillance, risk assessments, or other regulatory and oversight activities.

This exemption is slightly broader and more poorly written. While the exemption does seem to intend to only include investigatory information, the insertion of the phrase “other regulatory and oversight activities” broadens the scope and leaves a great deal of ambiguity. Therein lies the real problem with the bill. While the intention may be good, exemptions, like most laws originating in the legislature, should be arbitrary and clear, leaving little work for the courts to expand or clarify the legislation and consequentially little opportunity for government agencies to abuse the exemption.

In addition to poor wording, the fact that this exemption slid into such an enormous bill presents a serious problem for our legislature. Suggesting problems more with the legislative process rather than the bill itself, the inclusion of a hidden FOIA exemption poses a direct assault on American democratic values and the legislative process. The minute a bill becomes too large for a legislator to read entirely, let alone an average citizen, is the minute that the American government moves from a democracy by and for the people to a democracy by and for the bureaucracy. Citizens should vocally criticize their legislators on both sides of the isle for failing to bring to light such an important FOIA exemption prior to passage.

Thus, while the intention of the law is not outrageous or unheard of, the wording and the secrecy of the implementation will pose serious issues for the laws implementation and retention. The law should be modified so as to increase the specificity of the exemption, and the American public should become more vocally critical about the ability of legislators to slide in hidden legislation.

~Joshua Meyer
Editor of WikiFOIA

To read the original news article announcing the broad exemption, please see: SEC Says New Financial Regulation Law Exempts it From Public Disclosure

To read other articles on the bill, see: Obama signs broad reform of financial regulation into law and Fox News invents a rule exempting SEC from FOIA compliance

One response to “SEC FOIA exemption not uncommon, but still poorly done

  1. Esteemed colleague and Editor of WikiFOIA,
    I am going to deviate from your neutrality to bring a few observations I have made to light. After searching all major news outlets, I was only able to find right-leaning news agencies such as FOX News reporting this story. With that in mind, one has to wonder just how much of the story is attacking the Obama administration based on a political agenda behind the news agency and how much is actually “underhanded legislation”. It seems that others agree with my assessment and have blogged and discussed the same thing on these two sites:
    Republicans knock apparent FOIA exemption
    Fox News invents a rule exempting SEC from FOIA compliance

    I will agree with you that the provision needs to be closely monitored because of the poor wording, as does every exemption that has the potential to be abused. However, many laws are taken to our court system to be clarified every year. Writing legislation this way allows a committee or body to utilize exemptions tailored to their needs, and one hopes that it is done in a responsible manner. As this is not an ideal way for legislation to be passed it has often been the case throughout the years. For this reason it often falls to our judicial system to interpret how a law should be enforced. Bottom line, one would expect that a Government body would utilize their power responsibly, but as this is not always the case the situation does need to be monitored.

    I will concede to your point that overly long and complex legislation is a hindrance to transparency, however if bills are not concise and detailed then someone will find a loophole or overlooked section and use it in a way that was not intended. There has been a recent push in both in legislative writing (Oregon simple language legislation
    ) and in financial agreement writing (Bank of America – One page loan)
    to make simpler easier to understand documents.

    In my state level research I have found that clauses that protect information submitted by financial institutions often are in place to protect trade secrets or personal privacy. As such, I disagree with your assessment that the legislation had “hidden” FOIA exemption clause. I am going to make the assumption that state and federal legislation share a few trends and say that the exemption was similar to existing legislation and was perhaps paraphrased into the bill. I would like to think that everyone who voted on the legislation read the bill in its entirety, but know that is likely not the truth. However, it is difficult to track who has read the entire bill and who has not, but I would agree that reading legislation in its entirety is what we as citizens pay our representatives to do and when they fail to do so they are failing to perform their job adequately.

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