07-30-10 Friday

SEC Says New Financial Regulation Law Exempts it From Public Disclosure

Under a little-noticed provision of the recently passed financial-reform legislation, the Securities and Exchange Commission no longer has to comply with virtually all requests for information releases from the public, including those filed under the Freedom of Information Act.

The law, signed last week by President Obama, exempts the SEC from disclosing records or information derived from "surveillance, risk assessments, or other regulatory and oversight activities." Given that the SEC is a regulatory body, the provision covers almost every action by the agency, lawyers say. Congress and federal agencies can request information, but the public cannot.

That argument comes despite the President saying that one of the cornerstones of the sweeping new legislation was more transparent financial markets. Indeed, in touting the new law, Obama specifically said it would “increase transparency in financial dealings."

The SEC cited the new law Tuesday in a FOIA action brought by FOX Business Network. Steven Mintz, founding partner of law firm Mintz & Gold LLC in New York, lamented what he described as “the backroom deal that was cut between Congress and the SEC to keep the SEC’s failures secret. The only losers here are the American public.”

"The new provision applies to information obtained through examinations or derived from that information," said SEC spokesman John Nester. "We are expanding our examination program's surveillance and risk assessment efforts in order to provide more sophisticated and effective Wall Street oversight. The success of these efforts depends on our ability to obtain documents and other information from brokers, investment advisers and other registrants. The new legislation makes certain that we can obtain documents from registrants for risk assessment and surveillance under similar conditions that already exist by law for our examinations. Because registrants insist on confidential treatment of their documents, this new provision also removes an opportunity for brokers, investment advisers and other registrants to refuse to cooperate with our examination document requests."

Criticism of the provision has been swift. “It allows the SEC to block the public’s access to virtually all SEC records,” said Gary Aguirre, a former SEC staff attorney-turned-whistleblower who had accused the agency of thwarting an investigation into hedge fund Pequot Asset Management in 2005. “It permits the SEC to promulgate its own rules and regulations regarding the disclosure of records without getting the approval of the Office of Management and Budget, which typically applies to all federal agencies.”

Aguirre used FOIA requests in his own lawsuit against the SEC, which the SEC settled this year by paying him $755,000. Aguirre, who was fired in September 2005, argued that supervisors at the SEC stymied an investigation of Pequot – a charge that prompted an investigation by the Senate Judiciary and Finance committees.

The SEC closed the case in 2006, but would re-open it three years later. This year, Pequot and its founder, Arthur Samberg, were forced to pay $28 million to settle insider-trading charges related to shares of Microsoft (MSFT: 25.95 ,0.00 ,0.00%). The settlement with Aguirre came shortly later.

“From November 2008 through January 2009, I relied heavily on records obtained from the SEC through FOIA in communications to the FBI, Senate investigators, and the SEC in arguing the SEC had botched its initial investigation of Pequot’s trading in Microsoft securities and thus the SEC should reopen it, which it did,” Aguirre said. “The new legislation closes access to such records, even when the investigation is closed.

“It is hard to imagine how the bill could be more counterproductive,” Aguirre added.

FOX Business Network sued the SEC in March 2009 over its failure to produce documents related to its failed investigations into alleged investment frauds being perpetrated by Madoff and R. Allen Stanford. Following the Madoff and Stanford arrests it, was revealed that the SEC conducted investigations into both men prior to their arrests but failed to uncover their alleged frauds.

FOX Business made its initial request to the SEC in February 2009 seeking any information related to the agency’s response to complaints, tips and inquiries or any potential violations of the securities law or wrongdoing by Stanford.

FOX Business has also filed lawsuits against the Treasury Department and Federal Reserve over their failure to respond to FOIA requests regarding use of the bailout funds and the Fed’s extended loan facilities. In February, the Federal Court in New York sided with FOX Business and ordered the Treasury to comply with its requests.

Last year, the network won a legal victory to force the release of documents related to New York University’s lawsuit against Madoff feeder Ezra Merkin.

FOX Business’ FOIA requests have so far led the SEC to release several important and damaging documents:

•FOX Business used the FOIA to obtain a 2005 survey that the SEC in Fort Worth was sending to Stanford investors. The survey showed that the SEC had suspicions about Stanford several years prior to the collapse of his $7 billion empire.

•FOX Business used the FOIA to obtain copies of emails between Federal Reserve lawyers, AIG and staff at the Federal Reserve Bank of New York in which it was revealed the Fed staffers knew that bailing out AIG would result in bonuses being paid.

Recently, TARP Congressional Oversight Panel chair Elizabeth Warren told FOX Business that the network’s Freedom of Information Act efforts played a “very important part” of the panel’s investigation into AIG.

Warren told the network the government “crossed a line” with the AIG bailout.

“FOX News and the congressional oversight panel has pushed, pushed, pushed, for transparency, give us the documents, let us look at everything. Your Freedom of Information Act suit, which ultimately produced 250,000 pages of documentation, was a very important part of our report. We were able to rely on the documents that you pried out for a significant part of our being able to put this report together,” Warren said.

The SEC first made its intention to block further FOIA requests known on Tuesday. FOX Business was preparing for another round of “skirmishes” with the SEC, according to Mintz, when the agency called and said it intended to use Section 929I of the 2000-page legislation to refuse FBN’s ongoing requests for information.

Mintz said the network will challenge the SEC’s interpretation of the law.

“I believe this is subject to challenge,” he said. “The contours will have to be figured out by a court.”

(see this document at the end of the article)

SEC Financial Regulatory Law H.R. 4173


http://www.foxbusiness.com/markets/2010/07/28/sec-says-new-finreg-law-exempts-public-disclosure/?test=latestnews

FBI defends guidelines for domestic surveillance

WASHINGTON (AP) - Under fire from civil liberties groups, the FBI is defending domestic surveillance guidelines that critics fear could unfairly target innocent Muslims in terrorism and other criminal investigations.

"It's quite an invasive data collection system," said Farhana Khera, executive director of the nonprofit group Muslim Advocates. "It's based on generalized suspicion and fear on the part of law enforcement, not on individualized evidence of criminal activity."

Khera spoke in an interview on the eve of a Capitol Hill appearance by FBI Director Robert Mueller, who was scheduled to testify Wednesday to the Senate Judiciary Committee.

In a statement, the bureau said its procedures are designed to ensure that FBI probes don't zero in on anyone on the basis of race, ethnicity, religion or the exercise of any other constitutional right.

The FBI said its Domestic Investigations and Operations Guide equips agents with lawful and appropriate tools so the agency can transform itself into an intelligence-driven organization that investigates genuine criminal and national security threats.

Last September, the FBI disclosed an edited version of the guide as a result of a Freedom of Information Act lawsuit by the Electronic Frontier Foundation.

The manual was approved in December 2008, during the final days of the George W. Bush administration, and establishes policy that guides all the FBI's domestic operations, including counterterrorism, counterintelligence, crime and cyber crime.

On Tuesday, the American Civil Liberties Union also weighed in against the guide. The group asked FBI field offices in 29 states and Washington, D.C., to turn over records related to the bureau's collection of data on race and ethnicity.

According to the ACLU, the FBI's operations guide gives agents the authority to create maps of ethnic-oriented businesses, behaviors, lifestyle characteristics and cultural traditions in communities with concentrated ethnic populations.

While some racial and ethnic data collection by some agencies might be helpful in lessening discrimination, the FBI's attempt to collect and map demographic data using race-based criteria invites unconstitutional racial profiling by law enforcement, according to the ACLU.

Khera said the FBI has lowered the bar for sending undercover agents or informants into mosques and has enabled the gathering of data about Muslims' charitable giving practices, financial transactions and jobs.

The FBI is still refusing to make public portions of the guide that deal with sending agents or informants into houses of worship and political gatherings.

The bureau has previously stated it would only go into a mosque if it had some reason to believe there was criminal activity, said Khera. If that is the standard, the FBI should have no problem actually disclosing that section of the document, she said.

http://apnews.myway.com/article/20100728/D9H7TGC01.html