When Barack Obama signed the new financial-regulation reform bill into law, its supporters claimed it as a victory for transparency and accountability. That may be true for Wall Street, although debatable, but it’s not true for government and the regulatory regime it enhanced. The SEC now claims that the bill has given them an exemption from Freedom of Information Act requests, the very device by which citizens and media force transparency in the halls of power:
Under a little-noticed provision of the recently passed financial-reform legislation, the Securities and Exchange Commission no longer has to comply with virtually all requests for information releases from the public, including those filed under the Freedom of Information Act.
The law, signed last week by President Obama, exempts the SEC from disclosing records or information derived from “surveillance, risk assessments, or other regulatory and oversight activities.” Given that the SEC is a regulatory body, the provision covers almost every action by the agency, lawyers say. Congress and federal agencies can request information, but the public cannot.
That argument comes despite the President saying that one of the cornerstones of the sweeping new legislation was more transparent financial markets. Indeed, in touting the new law, Obama specifically said it would “increase transparency in financial dealings.”
The SEC cited the new law Tuesday in a FOIA action brought by FOX Business Network. Steven Mintz, founding partner of law firm Mintz & Gold LLC in New York, lamented what he described as “the backroom deal that was cut between Congress and the SEC to keep the SEC’s failures secret. The only losers here are the American public.”
The Dodd-Frank bill had a lot of bad ideas rolled into it, but this may be the worst. As Mintz notes, the next time a Bernie Madoff-type scam occurs, the American public won’t have any idea about it, or about the SEC’s efforts to prevent it. The use of FOIA has uncovered many problems at the SEC, which is undoubtedly why Chris Dodd and Barney Frank wanted the exemption. Among the cases listed by Fox Business as having been boosted by FOIA requests are:
- March 2009 – Fox used FOIA to discover that the SEC had investigated Madoff and R. Allen Stanford, but failed to follow through on prosecution in time to save investors.
- 2009 – Fox again used FOIA to get records showing that the Fed knew AIG execs would get their bonuses under the bailout legislation proposed by Congress.
- SEC whistleblower Gary Aguirre forced the SEC to release documents through FOIA requests that showed he was correct in accusing the agency of interfering in an investigation of Pequot Asset Management — and allowed him to get a settlement for wrongful termination.
None of these would have happened without FOIA. Government has only one purpose in issuing FOIA exemptions — opacity. Some functions in government require secrecy, but those should be limited to acute national security operations and other such public-safety tasks (such as raw FBI files, for instance).
Barack Obama and the Democrats don’t want people to see how the SEC does its work, and that should worry everyone who has watched the SEC blow its regulatory responsibilities over the last few years. This is an agency that needs more oversight, not less, especially with its increased power and authority.