No, Dodd-Frank Won't Gut the Freedom of Information Act or Exempt the SEC

(MoneyWatch)  Fox Business News contends that a provision in the newly enacted Dodd-Frank bill gives the SEC virtually blanket immunity from the Freedom of Information Act. That would be dreadful. FOIA, which requires federal agencies to disclose certain documents, has been instrumental in allowing the public and the press to obtain information from government that it wouldn't otherwise disclose.

Before we go any further, a simple disclaimer: As a rule, I'm for making it easier for people to monitor government and against making it harder. But while the financial reform law does expand existing exemptions to FOIA, it's not yet clear whether the SEC is getting quite the free pass that critics claims it will. According to Fox:

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.

Other media groups have hopped on the bandwagon. In a statement, the head of the Society of American Business Editors and Writers said the organization is "appalled" by the rule change.

What such critics gloss over is that all sorts of information that the SEC and other financial regulators gather during investigations is exempt from FOIA. Records of financial institutions, for one. Here's how FOIA defines that exclusion:

This exemption covers matters that are "contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions."

As the WaPo's Zach Goldfarb notes, the new rule only applies to formal SEC examinations of brokerage firms and investment advisers. And here's the the thing -- records culled in bank examinations are already exempt from FOIA. In other words, Dodd-Frank appears to only extend an exemption to securities regulators that are currently provided to bank regulators.

There are good reasons to shield that kind of data. Other exempt info under FOIA includes trade secrets; records compiled for law enforcement purposes; private citizens' medical files, if providing it would constitute a "clearly unwarranted" invasion of privacy; and records that could impair someone's right to a fair trial.

The SEC maintains it needs more discretion under FOIA because the agency is taking on more responsibility to oversee Wall Street. The SEC wants brokerage firms, investment advisers and other parties to be able to provide investigators with proprietary information without fear that such records could surface in a FOIA request.

That's a legitimate concern. But that exemption shouldn't be so broad as to give other government agencies, and the SEC itself, cover to keep a range of records under wraps. And on that score some civil libertarians are worried. Anne Weismann, chief counsel for Citizens for Responsibility and Ethics in Washingto, told Politico:

I understand the congressional intent was to apply this only to new authority [the SEC received in the bill]. But the language was written very broadly and the SEC is also construing it very broadly.

It's also worth noting that the SEC has a lousy record of complying with FOIA, as the agency's own Inspector General found in a September 2009 report. I'd feel more sanguine about letting some parts of the SEC operate in the shadows if it wasn't more willing to shed light on its other activities. And as the regulator's botched handling of the Bernie Madoff case shows, it has a lot to hide.

Fox is right to kvetch, and Congress should consider tightening Dodd-Frank to foreclose abuse of the new FOIA regs. But the dispute isn't as clear-cut as the network contends. The public has a right to know what the government is up to; yet the government also has a right -- and a responsibility -- to perform the duties assigned to it. The trick is in finding the balance.

Image from Flickr user GooseGoddessS
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