Wednesday, October 06, 2010

President Obama Signs Legislation Restricting SEC Dodd-Frank FOIA Exemptions

President Obama has signed legislation, P.L. 111-257, eliminating SEC exemptions from FOIA bestowed by Section 929I of the Dodd-Frank Act. The legislation, S 3717, was sponsored by Judiciary Committee Chair Patrick Leahy (D-Vt) and had strong bi-partisan support. The Senate passed S 3217 earlier by unanimous consent and the House took up the Senate bill and passed it by voice vote. President Obama had been 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 currently neither the text nor the legislative history of FOIA defines financial institutions encompassed by FOIA Exemption 8 and that, unless Congress acted, 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 was troubled by the SEC's attempts in recent weeks to retroactively 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.

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 was 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 had criticized the Leahy and Tonws measures because they fail to address public disclosure of a firm's information through third-party subpoenas.