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 Fleisch man, 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.
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.
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 nonpublic regulatory rulings, according to chief executive 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 nonprofit group was set up last year by news organizations to promote access to government information.
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.
