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Securities and Exchange Commission Gets More Secretive Under FinReg

August 4, 2010 - by Donny Shaw

This probably won’t come as a surprise to many of you, but in the 383,013-word, 2,253-page Dodd-Frank financial reform bill, Congress and the President seems to have enacted a provision that, according to a cadre of government transparency groups, “has the potential to severely hinder the public’s ability to access critical information related to the oversight activities of the Securities and Exchange Commission (SEC), thereby undermining the bill’s overarching goals of more transparency and accountability.”

The offending language is in Sec. 929I of the final bill, which is titled, “Protecting confidentiality of materials submitted to the Commission.” You can read the legislative text of that section for yourself at this link, or check out Sunlight Foundation policy counsel Daniel Schuman’s excellent explanation of the section here.

The condensed summary is that the provision allows the Securities and Exchange Commission to deny FOIA requests and court subpoenas (except for those coming from the federal government) for information that they say “[relates] to an examination, surveillance, or risk assessment” of entities under their jurisdiction. The new law is only two weeks old and the SEC has already used their new power to deny information requests. They cited the provision last week when denying a FOIA request from Fox News re: their handling of the Madoff case.

Government transparency groups are asking banking chairmen Chris Dodd [D, CT] and Barney Frank [D, MA-4] to remove or amend the language, and two bills have already been introduced to do so — Rep. Ron Paul’s [R, TX-14] H.R.5970 and Rep. Darrell Issa’s [R, CA-49] H.R.6038. Add those to your MyOpenCongress page of tracked items to get alerts as soon as either of them see any action.

If you’re like me, you’re probably curious where this anti-transparency provision came from. The answer: the Securities and Exchange Commission asked Chris Dodd and Barney Frank to include it in the financial reform bill and they complied.

Both the original Senate version introduced in April 2010 (S.3217) and the original House version introduced in December 2009 (H.R.4173) contained versions of the language. In the Senate version, the disclosure exemption was included in Sec. 404(8), and in the House version it’s in Sec. 7409. The exact wording of the provisions differ, but, for all intents and purposes, they do the same thing.

SEC Chairman Mary Schapiro gives a little more background in a letter to House Financial Services Chairman Rep. Barney Frank [D, MA-4] that was designed to alleviate concerns about the provision:

The need for Section 9291 is not new, nor is the general language that it contains. As far back as 2006, then SEC Chairman Chris Cox sought language similar to what is contained in Section 9291. On September 11, 2008, the House ofRepresentatives passed H.R. 6513, the Securities Act of 2008, by voice vote with bipartisan support. Section 15 of H.R. 6513 contains language similar to Section 9291. In July 2009, I provided you and other Congressional members with legislative proposals that Commission staff believed would allow the Commission to better protect investors. Contained in those proposals was language similar to Section 9291 regarding the protection of certain information provided to the Commission.

Daniel Schuman comes to what I think is the right conclusion here:

Based on the Commissioner’s letter, these provisions have shown up in legislation before — thus demonstrating how omnibus legislation allows a pre-existing laundry list to be enacted into law.

This also shows how difficult it can be to figure out what’s going on. With the move into the regulatory implementation phrase — and a request for public comments on the implementation of these regulations already issued by the SEC — it is likely that those who are in the know will work very hard to keep the rest of us from figuring out what’s going on … until it’s too late.

SEC Chairman Mary Schapiro is pictured above.

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