The Securities and Exchange Commission over the past decade was repeatedly warned about a New York-based financial guru named Bernard Madoff who was apparently running a giant Ponzi scheme. During the same period, the regulatory agency was tipped off to a Dallas-based investment manager named R. Allen Stanford who was also believed to be orchestrating a massive fraud.
Madoff essentially turned himself in in late 2008 after the early stirrings of the financial crisis felled his house of cards, and federal investigators caught up with Stanford a short time later, but not before both men had allegedly bilked investors out of billions of dollars.
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Reporters seeking documents from the SEC related to the failed investigations into these two scandals, ostensibly in an effort to determine what went wrong in an effort to prevent it from happening again, needed to file requests under the 40-year-old Freedom of Information Act, or FOIA.
Now comes word that under the sweeping, 2,300 page financial regulation signed into law last week by President Obama, the SEC is claiming it is exempt from some aspects of FOIA and no longer under legal obligation to turn over certain kinds of documents.
Legal experts believe the new provision could potentially block access to important documents that reveal how the SEC goes about its business as Wall Street’s primary watch dog.
Since so few apparently knew about the provision, shock was the first emotion expressed, quickly followed by outrage.
Congressman Darryl Issa, R-Calif., is sponsoring a new bill that would repeal any additional FOIA exemptions granted to the SEC as part of the new Dodd-Frank financial reform legislation.
“We’re going to drop a bill with a lot of co-sponsors. It’s only a few lines, straight forward – return the status quo where the SEC, with good cause, can say no to FOIA requests but not with no cause,” Issa told FOX Business Network, which broke the story on Wednesday.
“I’m sorry, but they told us there was no problem with Bernie Madoff effectively for decades. It’s clear the SEC has problems. Transparency is part of how you fix problems at agencies as you make them accountable to people who see problems before they recognize them. It’s one of the reasons we’re going to drop this bill and we are going to push hard to get us at least back to where we were before this law. If the SEC says there is no change, they should not object to this bill,” he said.
After the new provision was reported, the SEC said in a statement that the new law merely clarifies an existing FOIA exemption, and that the clarification will help it obtain confidential documents from otherwise reluctant financial firms. That, the SEC argues, will help it expand its investigative and surveillance capabilities.
Meanwhile, FOIA experts have expressed dismay.
Kevin Goldberg, a nationally renowned FOIA expert, told FOX Business that the exemption could be interpreted “way too broadly” by the SEC and that the provision needed to be analyzed more closely.
Lucy Dalglish, executive director of the Reporters Committee for Freedom, told the blog BusinessJournalism.org, “I’ve got 15 people on this – we’re going to get to the bottom of it.”
Most major business news outlets seem to be taking a wait and see approach, likely until their lawyers can get a closer look at the new provision.
Associated Press Assistant General Counsel Karen Kaiser issued a statement to FOX Business: “AP is waiting to see how the SEC interprets this new legislation. We hope it does so in the spirit of transparency.”
"We are studying the situation and obviously we're concerned with any attempt by Congress to decrease transparency in financial markets," added Bloomberg News spokesman Ty Trippet.
Spokesmen for the New York Times and Thomson Reuters did not immediately respond to requests for comment.
FOX Business attorney Steven Mintz pledged earlier this week to challenge the exemption.
"I believe this is subject to challenge," Mintz said. "The contours will have to be figured out by a court."
Perhaps the most poignant expression of outrage came, however, from one of Madoff’s former clients, Ronnie Sue Ambrosino. She and her husband lost most of their life savings to Madoff, who is now serving 150 years in a federal prison.
“This latest news is an atrocity and an example of a worse fraud -- that of our own government,” said Ambrosino, who encouraged news organizations to work toward increased transparency in government.
“As victims, we have experienced the same frustrations that you must be experiencing. Unfortunately, as individuals, we don’t have the resources to battle the big guns we’re up against. We appreciate your efforts…keep up the fight.”