Does Sunshine Handcuff The SEC?

As reported in today's "Investment News," President Obama has rolled back some significant Dodd-Frank related SEC FOIA exemptions. Initially adopting similar FOIA exemptions that apply in some other regulatory scenarios, Dodd-Frank contemplated that FOIA exemptions would extend to information gathered while the SEC conducts "surviellance, risk assessment or other oversight work." Legislation overturning that exemption unanimously passed the House and Senate on September 21 and was quietly signed into law last week.

The SEC opposed the change, stating its concern that such exemptions allowed it to conduct full and open investigations without concern that any confidential information it gathered would be subject to FOIA requests by competitor companies. For the moment, the SEC's concerns have been brushed aside by lawmakers in favor of the populist position that more "sunshine" in government is always better. However, in this case, as in many, the lawmakers' effort may fall short of their ultimate goal.

Anyone involved in an SEC, or really any government investigation, knows that the agencies depend upon openness and cooperation from subjects. In the world of government investigations, the environment is simply too target rich for the government to fight each investigation tooth and nail. Notwithstanding perceptions, even the federal government's resources fall short of the breadth needed to fight if every subpoena, document request or request for interview or meeting were challenged. They depend upon cooperation. They depend upon subjects concluding that, on balance, it is better to cooperate than to challenge, and the Consumer Finance Protection Bureau will be no different. From a subject's perspective, that analysis could change substantially if confidential information that is requested in furtherence of a SEC investigation is subject to public disclosure. One can easily imagine a circumstance in which dilatory or down-right obstructive behavior could better protect a subject's sensitive information than cooperative behavior.

Lawmakers have promised that they will return to this issue and reestablish appropriate exemptions in the future. One can only hope that they will be true to their word. No doubt, there is a place for "sunshine" in government, and open government advocates do us all a service. But, as we here at BB&R have opined in connection with the foreclosure issues that are dominating the news, there are equities on both sides that should be considered. No subject of an investigation should be put in the position of choosing whether to allow confidential and competitive information to be made public or challenging subpoenas and other investigatory tools that might otherwise be handled cooperatively. Whether you believe the repeal of the exemptions to be good or bad, one thing is for certain, SEC investigations will be more difficult, and likely more expensive for the agency than they were, at least in the short run.