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Project on Government Oversight




Rep. Issa Challenges SEC on FOIA Exemptions

August 9, 2010 


On Friday, House Oversight and Government Reform Committee Ranking Member Darrell Issa (R-CA) sent a letter to Securities and Exchange Commission (SEC) Chairman Mary Schapiro challenging her on the need for blanket FOIA exemptions in the financial overhaul legislation, and requesting that she provide the Committee with more information on the SEC’s FOIA operations.

A few weeks ago, Chairman Schapiro wrote to Senator Christopher Dodd (D-CT) and Representative Barney Frank (D-MA) defending a provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Section 929I) that prohibits the SEC from publicly disclosing any “records or information” provided by its regulated entities if the agency uses the information for “surveillance, risk assessments, or other regulatory and oversight activities.” She argued that these FOIA exemptions are necessary in order to convince the SEC’s regulated entities—which will now include a wider range of firms such as hedge funds—to provide sensitive and confidential information to SEC examiners without worrying that it could one day be released to the public.

However, POGO and other good government groups are not convinced that the SEC needs any more authority to withhold information from the public. Existing FOIA exemptions have stood the test of time in protecting against the release of sensitive or proprietary information. Furthermore, the SEC should not have to convince its regulated entities to cooperate, when it has the authority to issue subpoenas and impose penalties for non-compliance.

Rep. Issa raised these and many other concerns in his letter to Chairman Schapiro, arguing that she has “not adequately supported [her] claim that FOIA’s existing exemptions were inadequate to protect firms’ genuinely sensitive information.” He also pointed out that the SEC has already attempted to use Section 929I to withhold broad categories of documents, including information that would hardly qualify as sensitive or proprietary.

Rep. Issa has given Chairman Schapiro until August 19th to take the following actions:

  1. Provide all records and communications referring or relating to internal policies or guidance, effective between January 1, 2005, and the present, governing the SEC’s treatment of FOIA requests.

  2. Provide all records and communications referring or relating to Section 929I and every similar legislative proposal that is referred to by your July 30, 2010 letter.

  3. State the basis for your suggestion that FOIA’s examination exemption might cover some entities that the SEC regulates, but not others.

  4. Describe every action taken by the SEC in response to the September 25, 2009 Inspector General report entitled, Review of the Securities and Exchange Commission’s Compliance with the Freedom of Information Act.

  5. In categorical terms, describe any information that was actually withheld from an SEC examiner under the circumstances described by your July 30, 2010 letter and was not covered by any FOIA exemption.

  6. If it is your position that “customer information, trading algorithms, internal audit reports, trading strategy information, portfolio manager trading records and exchanges electronic trading and surveillance specifications and parameters” are not covered by any FOIA exemption, state the basis for your position.

POGO looks forward to Chairman Schapiro’s response to these questions.

Members of Congress from both sides of the aisle are now considering striking the FOIA exemptions found in Section 929I. Rep. Issa, a long-time advocate of greater transparency in the financial system, has introduced legislation to repeal this provision. And last week, Senators Patrick Leahy (D-VT), Charles Grassley (R-IA), John Cornyn (R-TX), and Ted Kaufman (D-DE) introduced a bipartisan bill to eliminate the unnecessary FOIA exemptions in Section 929I, and to clarify that existing FOIA exemptions will protect against the release of confidential information contained in the records of hedge funds and other firms that will now be regulated by the SEC under the Dodd-Frank bill.

Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO's investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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