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Transparency at the SEC? Why Would They Want to Do That?

Posted by Larry Doyle on July 29, 2010 7:10 AM |

Is the SEC’s Inspector General David Kotz looking for a new job? How about SEC Head Mary Schapiro? Is she also looking for a new job?

Why do I ask? Is America aware that the new Financial Regulatory Reform bill, recently passed by Congress and signed into law by President Obama, will effectively close the doors and shut the blinds at the SEC in terms of people being allowed to gain access to information? Why and how do situations like this happen? Let’s navigate.

Fox News highlighted this travesty yesterday in writing, SEC Says New Financial Regulation Law Exempts It from Public Disclosure:

So much for transparency.

Under a little-noticed provision of the recently passed financial-reform legislation, the Securities andExchange 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.”

First off, if I am David Kotz, I would feel totally neutered by this development and I would immediately start looking for another job.

In regard to Mary Schapiro, my reference to her looking for employment is made in jest but the reason I make it is because I recall the seemingly very gratuitous comments she made in support of transparency and disclosure during her testimony provided to the Financial Crisis Inquiry Commission this past January.

After reading Ms. Schapiro’s testimony that day, I wrote “Mary Schapiro and Mark McGwire” and highlighted:

Schapiro makes reference to the SEC approximately 110 times in her opening statement. She references the NASD (FINRA) once, and that being a comment regarding the ‘uptick rule’ in 1994.

What about your past, Mary? You present yourself as a fan of greater transparency and disclosure. You reference disclosure or the need for greater disclosure approximately 25 times in your statement. You reference transparency or the need for greater transparency approximately 15 times in your statement.

Was Mary just paying the American public lip service? Was Obama doing the same? Were those in Congress also pandering to the American public? Has Wall Street just shut the door? American investors should be very concerned with this development.

Do you trust Wall Street? Do you trust our financial regulators to be able to properly oversee the financial industry? Why do I ask? For the very simple reason that none other than Harry Markopolos highlighted that the one real lesson more than any other that he learned throughout his ten plus year ordeal chasing down the Madoff scam was, “Don’t Trust the Government.”

While Wall Street will maintain that the SEC needs this new rule in place if it wants to collect information from the financial industry, for whom does the SEC work? Let’s listen to what others have to say:

“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.

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

Freedom of information is a core principle to truly good governance and a civil society. My initial gut instinct tells me that the industry and the SEC are aware that there are other frauds buried in the system, or there are other angles to the Madoff and Stanford scams, and the industry and regulators want to keep them buried.

If this regulation is allowed to stand, I believe it is a clear indication that the Wall Street-Washington incestuous relationship is alive and well, and truly getting stronger.

Without transparency, there can be no real accountability. Without accountability, there can be no real integrity.

What happened to our country? America deserves so much better.


Thanks to the friends of Sense on Cents who brought this story to my attention. Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook. Thanks you.

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