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Corporate & Securities Law

: Jim Hamilton's World of Securities Regulation

Senate Passes Legislation Eliminating SEC Dodd-Frank FOIA Exemptions and Broadening Definition of Financial Institution

By Jim Hamilton

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The Senate has passed legislation by unanimous consent eliminating SEC exemptions from FOIA bestowed by Section 929I of the Dodd-Frank Act. The legislation is sponsored by Judiciary Committee Chair Patrick Leahy (D-Vt) and has strong bi-partisan report. The Senate believes that the blanket FOIA exemption given to the SEC by Dodd-Frank was overbroad. The legislation clarifies that hedge funds and other new entities that the SEC will regulate under Dodd-Frank will be considered financial institutions for purposes of applying the FOIA exemption. The legislation will ensure that the SEC can treat sensitive information that hedge funds provide to the Commission in connection with SEC surveillence and examination activities in the same manner as the SEC treats such information when it is provided by other financial institutions. The legislation broadly defines financial institution as any entity the SEC examines, regulates or supervises. This broad definition is designed to address concerns that neither the text nir the legislative history of FOIA defines financial institutions encompassed by FOIA Exemption 8 and that newly regulated entities such as hedge funds would not be considered financial institutions under the exemption.

Upon introducing the bill, S, 3717, Senator Leahy said that the Dodd-Frank FOIA exemptions were designed to ensure that the SEC had access to information that the Commission needs to carry out its enforcement powers and protect investors. But the Judiciary Chair is troubled by the SEC's attempts in recent weeks to reyroactively apply these exemptions to pending FOIA matters and by the sweeping interpretations the SEC has expressed that these exemptions would shield all information provided to the Commission in connection with its examination and surveillance activities.

According to Senator Leahy, in order to ensure that the Freedom of Information Act (FOIA) remains an effective tool to provide public access to information about the stability of US financial markets, the legislation eliminates several broad FOIA exemptions for SEC records that were recently enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The measure will at the same time also help ensure that the SEC has access to the information that the Commission needs to carry out its new enforcement activities under the new reforms.

Senator Leahy said that FOIA is the people's window into their government and care must be taken to ensure that exemptions from FOIA's disclosure mandates are narrowly applied.

There is a companion bill in the House, HR 6086, introduced by Rep. Edolphus Towns, Chair of the House Oversight and Government Reform Committee. In recent testimony before the House Financial Services Committee, Rep. Towns said that the FOIA exmeption in 929I is too broad since it allows the SEC to keep secret virtually any information it obtains under its examination authority.

The securities industry has criticized the Leahy and Tonws measures because they fail to address public disclosure of a firm's information through third-party subpoenas,

Full post as published by Jim Hamilton's World of Securities Regulation on September 23, 2010 (boomark / email).