SAC.com (November 20, 2014) -- Right after we went to press last week came news that the D.C. Circuit had ruled against PIABA in its suit against the SEC seeking disclosure under the Freedom of Information Act (“FOIA”) of records pertaining to the FINRA Dispute Resolution forum.

The underlying suit in Public Investors Arbitration Bar Ass’n. v. SEC, No. 13-5137 (D.C. Cir. Nov. 14, 2014), which dates back to 2010, did not involve FINRA as a party. PIABA had made a FOIA request to the SEC seeking “records related to the agency’s audits, inspections, and reviews of FINRA’s arbitration program.” SEC staff identified 65 boxes of materials that were potentially responsive to PIABA’s FOIA request, “most” of which pertained to the Commission’s response to consumer complaints about the arbitration forum. The SEC refused to produce these materials, however, citing FOIA Exemption 8, which allows a federal agency to withhold from disclosure materials “contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions” (5 U.S.C. § 552(b)(8)). PIABA lost both an internal appeal and a subsequent court action filed against the SEC in the U.S. District Court for the District of Columbia, 930 F. Supp. 55 (D.D.C. 2013). An appeal to the D.C. Circuit followed.

Parsing FOIA

Turning to the language of the statute, the Court quickly concludes that the SEC is an agency that is responsible for regulating financial institutions, and that the PIABA information request does not involve operating or condition reports. That left two issues for the Court to rule upon: 1) are the requested materials “contained in or related to” an “examination report;” and 2) is FINRA a “financial institution” for FOIA purposes.” To which the Court rules “yes and yes.”

Examination Reports

PIABA had argued that the FINRA records it requested involved FINRA’s management and operation of its pool of arbitrators and not examinations of the Authority’s financial transactions, which, PIABA asserted, was the thrust of Exemption 8. The Court declines to so constrain Exemption 8. “In this case, the statute’s plain meaning is all but conclusive. Guided by the dictionary, we think it quite clear that ‘examination’ reports encompass any report stemming from the Commission ‘inspect[ing] closely’ or ‘inquir[ing] carefully’ into something…” The Court also dismisses PIABA’s assertion that the SEC’s records on investor complaints are not “reports” within the meaning of Exemption 8.

FINRA is a Financial Institution for FOIA Purposes

The Court notes that, in 2010, “Congress passed two amendments to the Exchange Act—and, by reference, to FOIA—that made apparent once and for all the exemption’s striking breadth, at least with respect to the Securities and Exchange Commission.” As already noted, the first declared that, for purposes of FOIA, the SEC regulated financial institutions. The second provided that, for FOIA purposes, any entity the Commission regulates – such as FINRA – is a “financial institution.” To illustrate the point, the Court states that if the SEC were charged with regulating the National Football League, the NFL would by statute qualify as a financial institution, and any report on, for example, player concussions, would be exempt from disclosure.

The Bottom Line: No Disclosure

Putting it all together, the Court rules: “In sum, then, we hold that documents the Commission collects while examining financial institutions—that is, while examining any organization the agency regulates—are exempt from disclosure. This is true no matter the records’ substance so long as they relate to a resulting report.”

(ed: *Project On Government Oversight, Citizens for Responsibility and Ethics in Washington, and OpenTheGovernment.org appeared as amici curiae in support of PIABA. **Concurring Judge Brown expresses concerns that Congress went too far with the 2010 amendments, in light of “the haze of public distrust fueled by repeated regulatory failures and massive, opaque, and unaccountable bailouts,” and urges that it “revisit this ill-conceived amendment…”) (SAC Ref. No. 2014-44-01)