Securities and Exchange Commission Chairman Mary Schapiro said a controversial section of the new Wall Street reform bill dealing with Freedom of Information Act requests will sharpen its ability to investigate wrong-doers.
In testimony before a Congressional committee on Thursday, Schapiro defended the legislation, section 9291 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which allows the SEC to reject some requests for documents.
The provision “enhances the commission’s ability to examine regulated entities by making clear that the commission may protect, in appropriate circumstances, information gathered in the examination process,” Schapiro said.
Critics have said the law will diminish transparency and could help the agency hide embarrassing missteps such as the bungled efforts to catch Ponzi schemer Bernard Madoff and accused fraud mastermind R. Allen Stanford.
Rep. Darrel Issa, (R-Cal.) has introduced legislation seeking to repeal the provision and that sentiment seems to be gaining traction. The Senate Judiciary Committee on Thursday unanimously approved a bill eliminating the FOIA exemptions, and the House of Representatives could approve its own bill by the end of next week.
But Schapiro said the SEC will not use the law to cover up its mistakes. To the contrary, she said, the agency has issued guidance to ensure that its employees remain committed to “principles of open government.”
The law allows the SEC to reject Freedom of Information Act requests for documents obtained while examining regulated firms, according to Schapiro’s prepared remarks.
Rather than give the SEC greater powers, the provision merely clarifies an existing FOIA exemption for “financial institution” records, Schapiro said. Without the new clause, the SEC might have been forced to release documents collected while inspecting credit-rating companies and municipal-bond advisers.
Since FOX Business Network first reported on the new clause in July, the SEC has argued that it will help the SEC in its efforts to expand its surveillance and investigations by allowing information obtained from banks and other financial institutions to remain confidential.
Without that assurance of confidentiality, some banks and financial institutions might not cooperate with SEC investigations, a situation that would weaken investor confidence, the SEC has said.
At least one influential member of Congress wasn’t swayed by Schapiro’s arguments on Thursday.
"I am convinced that it went too far," Rep. Barney Frank, (D-Mass.), chairman of the House Financial Services Committee, said during the hearing. "It is clear that legislation is required."
In a statement, Issa said Congress’ approval of the section is “just the latest example of Congress passing and the President signing legislation into law without fully understanding what’s in it.” The provision, according to Issa, “shields the SEC from the transparency and accountability this reform bill was supposed to represent.”
The Congressman added, “Both Democrats and Republicans alike should agree that we cannot allow this regulatory body that failed to catch Allen Stanford's fraud and Bernie Madoff's Ponzi scheme to operate in secrecy.”
The FOX Business Network first reported the provision and its potential impact after the SEC cited the new law in a FOIA action brought by the network.
After FOX Business reported on the law and it was widely covered by the media, many members of Congress admitted that they were unaware of its inclusion in the vast Dodd-Frank reform bill.