Ted Kaufman - United States Senator for Delaware

Lawmakers: Close SEC's open records loophole

Source: Associated Press

By Daniel Wagner

August 6, 2010

A bipartisan group of senators has introduced legislation designed to make regulation of financial companies more transparent — and to close a major loophole in the sweeping financial overhaul enacted last month.

The bill would reverse language in the overhaul law that allows the Securities and Exchange Commission to reject many open records requests. The SEC would not have to disclose any records related to its policing of companies such as hedge funds and computer trading platforms.

The federal Freedom of Information Act requires that government records be released to anyone who asks, unless they fall under one of nine exceptions to the law. The overhaul law broadened the SEC's ability to invoke these exemptions.

The SEC has been criticized for failing to catch a number of high-profile frauds before the crisis, including a multibillion dollar Ponzi scheme operated by Bernard Madoff. Critics fear the open records loophole would help the agency withhold information about other failures.

Lawmakers from both parties and both chambers are concerned about exempting the SEC from oversight just as it tests out new powers it gained under the overhaul.

The Senate legislation was introduced Thursday by Sens. Patrick Leahy, D-Vt.; John Cornyn, R-Texas; Ted KAUFMAN, D-Del. and Chuck Grassley, R-Iowa. A similar measure was introduced in the House this week by Rep. Darrell Issa, R-Calif.

The legislation mostly reverts to the old disclosure rules. But it lets the SEC protect some information by treating all the companies it regulates as if they were banks. Information produced as part of bank supervision is already exempt from the open records law.

The SEC says it needs the exemption to keep the companies' investment practices secret. It says investment funds and others will refuse to turn over data that they think will be shared publicly.

If passed, this would be the first law designed to close a loophole in the 2,300-page overhaul, which includes sweeping new powers for regulators and creates a new consumer financial protection bureau.

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