Thursday, September 23, 2010

Congress Clears Legislation on SEC Dodd-Frank FOIA Exemptions for President's Signature

The House has joined the Senate in passing legislation eliminating broad SEC FOIA exemptions contained in the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act. The Senate passed S 3217 earlier this week by unanimous consent and the House took up the Senate bill and passed it by voice vote. President Obama is expected to sign the legislation.

Congress 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 and private equity 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 nor 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.

House Financial Services Chair Barney Frank  noted that the bipartisan agreement that a legislative remedy was necessary. The Senate acted first with legislation to solve the immediate problem, noted the Chair, and the House decided that the best way to proceed was to concur with the Senate so that the President could sign legislation that solves the immediate problem. 

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