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Corporate & Securities Law

: Jim Hamilton's World of Securities Regulation

Current and Former SEC Chairs Defend Commission's FOIA Exemption in Dodd-Frank

By Jim Hamilton

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With legislation repealing or modifying Section 929I of Dodd-Frank looming, current and former SEC Chairs have spoken of the Commission's need for the FOIA exemptions that thE statute confers. In testimony before the House Financial Services Committee, SEC Chair Mary Schapiro said that Sec. 929I enhances the SEC's ability to examine the firms it regulates by clarifying that the Commission can protect information gathered in the examination process from the regulated firms. Indeed, the Chair believes that 929I is central to the SEC's ability to develop a robust examination program to protect investors. Former SEC Chair Harvey Pitt said that the need for 929I is manifest, adding that 929I traces its origins to years of SEC experience with confidential information and has been supported by SEC Chairs from both political parties.

The SEC has articulated guidance designed to allay the fears of Congress that the FOIA exemption provided by Sec. 929I is overly broad, The guidance says that, in responding to FOIA requests, the staff may rely on 929I only when there is an absence of case law holding that the firm at issue is a financial institution could restrict the application of FOIA Exemption 8 in protecting materials obtained by the SEC pursuant to an examination. FOIA Exemption 8 protects from disclosure information contained in or related to examinatio, operating or condition reports about financial institutions regulated by the SEC. But FOIA Exemption 8 does not define financial institution.

The SEC guidance also states that, in responding to discovery requests, the staff will not rely on 929I in any non-FOIA case in which the SEC is a party and in other cases will use 929I only with respect to information gathered by the SEC pursuant to its examination authority and that would be withheld pursuant to a FOIA request. Section 929I goes beyond FOIA and codifies reasonable limits on the SEC's obligation to disclose information in the context of third party subpoenas.

The fact that FOIA Exemption 8 does not define financial institution has troubled SEC Chairs. The SEC has been given jurisdiction over a number of new entities and there is no presumption that the courts will find that every firm the SEC examines is a financial institution. Hence, Ms. Schapiro praised Sec. 929I for eliminating any uncertainty concerning FOIA Exemption 8 by clarifying that information obtained in examination from any covered regulated entity would be exempt.

Former Chairman Pitt noted that the impact of 929I is greatest in the area of non-FOIA document requests or third=party subpoenas pursuant to litigation. The need for Sec. 929I is grea t because refusing third-party subpoenas for sensitive information belonging to regulated entities has presented the SEC with significant difficulties. When confronted with a subpoena, in order to protect a firm's confidential information, the SEC has had to challenge the subpoenas on common law grounds such as relevance. Chairman Schapiro pointed this out in letters this past July to Chairmen Dodd and Frank.

Full post as published by Jim Hamilton's World of Securities Regulation on September 21, 2010 (boomark / email).

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