SEC, Champion of Disclosure, Tops CIA in Refusing Data Requests
2005-09-30 00:09 (New York)
By Otis Bilodeau
Sept. 30 (Bloomberg) -- The U.S. government agency that
promotes corporate transparency has some secrets. Lots of them.
The Securities and Exchange Commission, which has ratcheted
up sanctions on companies that hide information, rebuffs requests
from the public for its internal records more often than almost
every government agency and department, including the CIA and the
Pentagon, a survey shows.
The SEC granted only 34 percent of the 3,830 petitions it
processed from investors, lawyers and other information seekers
who filed under the Freedom of Information Act during the
commission's 2004 fiscal year, according to a report by the
Coalition of Journalists for Open Government. Almost one in five
of the SEC's denials that were appealed were overturned. And its
year-end backlog of 8,635 requests was bigger than all but four
agencies surveyed.
``The SEC has never applied the same standards to itself
that it applies to the companies it regulates,'' says Edward
Fleischman, 73, a former SEC commissioner and now senior counsel
at the Linklaters law firm in New York. ``This is an agency that
has never done very much disclosure about itself.''
The Central Intelligence Agency and the Defense Department,
repositories of classified security information that's exempt
from disclosure requirements, each granted at least half the
requests they reviewed, according to the report released last
month. The CIA reviewed 3,336 filings and the Pentagon 77,256.
Information Brokers
The SEC has been hit with a surge in demand for information
by investors since a wave of accounting scandals brought down
companies such as Enron Corp. in 2001 and WorldCom Inc. in 2002.
Partly as a result, the Washington-based commission failed
to rule on 93 percent of the more than 9,000 requests for
information it received last fiscal year, and it now faces a
daunting backlog, according to the coalition's report.
Among the losers are companies seeking to learn the reasons
behind the commission's regulatory actions, hedge funds hunting
for potentially market-moving data, and investors scouting for
signs of the next corporate collapse.
Yet the applicants that are by far the most thwarted by the
SEC are information brokers -- companies that try to gather
corporate and regulatory data from the commission to sell to
investors. One firm alone, Washington-based Global Securities
Information Inc., says it has filed more than 9,000 Freedom of
Information Act requests during the past three years and has more
than 6,000 pending before the agency.
Selling Data
Global Securities, acquired by Toronto-based Thomson Corp.
in July, offers products including Livedgar, a database of
corporate SEC filings. By peppering the SEC with requests for
information, Global Securities aims to extract details of
companies' finances and non-public regulatory rulings, according
to Chief Executive Officer Phillip Brown.
Customers including law firms, investment banks and
accounting firms pay for that information, which can be valuable
when conducting due diligence on potential investments and when
advising clients on how to avoid running afoul of the agency.
Bloomberg LP, the closely held parent company of Bloomberg
News, competes with Thomson in providing information to the
financial-services industry.
Of the 25 U.S. departments and agencies in the report, only
the Small Business Administration and the National Archives
released internal records less often than did the SEC, according
to the Arlington, Virginia-based journalists' coalition. The non-
profit group was set up last year by news organizations to
promote access to government information.
Requests Quadrupled
SEC spokesman John Nester defends the regulator's handling
of requests filed through the Freedom of Information Act, a 1966
law requiring federal agencies to release internal records unless
they contain material such as national security secrets, personal
information or active law-enforcement investigations.
Nester says the annual requests have almost quadrupled from
2,500 in 2001. Most petitions rejected by the agency sought
records that didn't exist or related to active investigations, he
says.
The SEC is committed to ``full and open disclosure,'' Nester
says. ``We have even started posting on our Web site information
previously available only through FOIA.'' The posted materials
include correspondence between companies and SEC staff.
SEC Chairman Christopher Cox declined to comment, Nester
says.
The public filed 9,325 requests with the SEC from October
2003 to October 2004. All but 690 of the 3,830 Freedom of
Information Act petitions the agency ruled on that year were
holdovers from fiscal 2003. So when the SEC closed the books on
2004, it still faced 8,635 pending requests.
`Incredibly Far Behind'
``They're incredibly far behind,'' says Pete Weitzel, 69,
the head of the coalition and author of the report. ``Something
is totally out of whack there.''
Celia Winter, who oversees the SEC's Freedom of Information
Act office, relies on a staff that hasn't grown as fast as the
workload. She had about 63 full- and part-time employees last
year, compared with 59 in the office in 2001.
``We've been incredibly swamped,'' says Winter, 49. ``Public
awareness of securities issues has leaped.''
Nester, the SEC spokesman, says the agency may bolster the
department. ``Additional staffing needs have been identified and
are being addressed,'' he says, declining to be more specific.
At the same time, the SEC itself has been cracking down on
companies that concealed the truth about their financial
performance, conflicts of interest or perquisites doled out to
managers.
Record Fines
The volume of SEC enforcement actions and the size of fines
have reached record levels during the past two years. In 2003,
Clinton, Mississippi-based WorldCom agreed to pay a $750 million
penalty to settle fraud allegations made by the SEC. That
eclipsed the previous high -- a $10 million fine levied on
Stamford, Connecticut-based Xerox Corp. the year before.
Winter says the agency has been deluged with requests for
information about public companies and their dealings with SEC
regulators since the scandals.
Many applicants, including information brokers, seek
correspondence between companies and the agency, she says. Those
letters may contain confidential details of mergers under review
by the SEC or arguments about the propriety of a firm's
accounting and financial disclosures. Under the Freedom of
Information Act, the SEC isn't required to reveal ``confidential
business information,'' or communications that reveal the
agency's ``deliberative process.''
`We Pay for These Requests'
Global Securities Information is helping companies and their
advisers gain a better understanding of an agency that governs
their existence, CEO Brown says.
``We pay for these requests, and we're putting out
information that has added transparency to the regulatory
process,'' says Brown, 45.
Bloomberg filed 16 requests in the past fiscal year,
according to the SEC.
The federal law leaves it up to the agencies to decide what
fees to charge those seeking information. The fees, sometimes
waived, generally cover the expense of searching for documents,
as well as copying and mailing costs.
Others who sought records from the commission included
private securities lawyers such as Simon Lorne, 59, a former SEC
general counsel who is now vice chairman of the New York hedge
fund Millennium Partners LP, and news organizations such as the
Wall Street Journal and Bloomberg News.
Overruled 20% of Time
Bloomberg sued the commission in federal court in 2002 after
the agency rejected the company's request under the Freedom of
Information Act for logs, message slips and appointment agendas
relating to then-SEC Chairman Harvey Pitt. The court ruled last
year that the documents are private.
Lawyers who defend companies or individuals in
investigations by the commission at times resort to filing
Freedom of Information Act requests to try to determine whether a
probe has been dropped, says Fleischman, the former SEC
commissioner. The SEC generally doesn't tell companies when it
abandons investigations.
When the SEC's staff denied petitions last year, it
sometimes did so incorrectly, the report showed. After people
challenged the denials before the commission's general counsel on
appeals, the rulings were overturned in some 20 percent of the
cases and the original requests were granted in full.
The previous year, fewer than 10 percent of all denials were
completely reversed by the SEC's general counsel.
At the CIA, no Freedom of Information Act denial was
completely overturned last year.
Many of the SEC requests sought information about
investigations taking place at the time, so the staff rightly
rejected them at first, Nester says. In several instances, the
probes had ended when the requests were reconsidered on appeal,
and they were then granted, he says.
``You could make the argument that the SEC is running the
most honest appeals process in the government,'' says the
coalition's Weitzel, who worked at the Miami Herald for almost 40
years. ``Or you could conclude that their denials are so out of
whack that they have to turn around and grant some of them on
appeal.''
--With reporting by Laurence Arnold in Washington. Editors:
McQuillan, Horvitz, Henry, Todd.
Story illustration: For links to FOIA reports for U.S.
agencies and departments from 1998 to 2004, see:
justice.gov. For the report
from the Coalition of Journalists for Open Government, see:
cjog.net. For news on the SEC and information on
current rulemakings and administrative orders, see: {SECM <GO>}.
See {BLAW <GO>} for a menu of law-related resources.
To contact the reporter on this story:
Otis Bilodeau in Washington at (1)(202) 624-1988 or
obilodeau@bloomberg.net.
To contact the editor responsible for this story:
Erik Schatzker at (1)(212) 617-3849 or
eschatzker@bloomberg.net. |
