The American Securities Association Uses a FOIA Lawsuit to Advance Its Agenda
Two months ago, the two Republican members of the Securities and Exchange Commission blasted their own agency for what they called a meritless prosecution of stock exchanges. In a blunt assessment, they accused their agency of an “inordinate focus on technical compliance, as opposed to real-world harm.”
The case involved the owner of the New York Stock Exchange. The Commission had just levied a $10 million penalty against the NYSE’s parent company – the Intercontinental Exchange – and its subsidiaries, for what the Republican commissioners, Hester Peirce and Mark Uyeda, considered to be an inconsequential violation of the SEC’s rules. (The infraction: a minor “systems intrusion” by a would-be hacker hadn’t been reported to the SEC.)
For Intercontinental, agreeing to the penalty without admitting or denying guilt was the cost of doing business. The defendant was moving on.
But not the two commissioners. It was “not unreasonable,” the two said in their unusual public statement, to conclude that the SEC was more focused on using its penalty regime “to generate numbers for year-end statistics” than protecting investors.
They invited the public to look upon their own agency with skepticism: “It would not be surprising if the inordinate focus on technical compliance . . . affects the way the public views the Commission’s regulatory agenda and how it is likely to be implemented.”
By the time Intercontinental settled, the American Securities Association was already setting the stage for a lawsuit – filed two weeks after Peirce and Uyeda made their comments – that would score the same points.
We’ve recently taken note of the litigious stance of the ASA, which represents regional brokerage firms and calls itself “the core of job creation, wealth preservation, and increasing prosperity.” Last week, we wrote about the ASA’s sprawling litigation, with Citadel Securities, against the SEC’s Consolidated Audit Trail. (See “CAT Up a Tree: Showdown Looms Over SEC’s Plan for a Huge Trading Database.”)
The ASA case we’re writing about this week is a Freedom of Information Act lawsuit that was filed in federal district court in Tampa, where the ASA is headquartered, on June 6. The lawsuit seeks information about how the SEC “choose[s] to target certain companies for suspicion-less investigations,” and how the SEC arrives at the penalties it imposes. We’ll describe the FOIA lawsuit in more detail below. But first, some further context.
ASA’s latest lawsuit is ostensibly about the legality of withholding certain facts. But it is very much of a piece with the CAT litigation filed by ASA and Citadel. Both legal actions are aimed squarely at perceived excesses of SEC regulation, and play to the core of the Supreme Court’s recent rulings curbing the so-called administrative state, including SEC v. Jarkesy, which curtailed the SEC’s ability to use its administrative system to extract future high-dollar fraud settlements that totaled $11.5 billion in the last two years alone. (In a court filing last Friday, the SEC issued a blanket denial of all claims in the FOIA case.)
The ASA’s latest action against the SEC got its start last March as two routine, albeit cryptic, requests submitted through the agency’s FOIA portal. The requests showed up in PoliScio Analytics’ competitive-intelligence database FOIAengine, which tracks FOIA requests in as close to real-time as their availability allows.
Both ASA requests asked for more details about enforcement actions beginning in 2021 against more than two dozen banks and brokerage firms that allowed employees to conduct business on personal cell phones and computers – outside the strictures of SEC recordkeeping requirements – during the chaotic early days of the Covid-19 pandemic.
Rather than fight the charges, all the firms settled. The SEC bundled the settlements into four separate announcements over a three-year period, garnering a total of $1.383 billion in settlements from the banks and brokerage firms for what the agency called “widespread and longstanding failures” by the firms to maintain adequate books and records. Firms that came forward on their own to confess violations were said to receive lighter fines.
Three years later, with the SEC’s administrative system already under attack in Jarkesy, the ASA came in with its FOIA requests seeking “all records” that were considered in calculating the penalties, as well as “all records relating to any credits or benefits that were received for ‘self-reporting, remediating, and cooperating’ with the SEC.”
An SEC FOIA officer denied both requests, citing an exemption for law enforcement records. And, the official added, “we reserve the right to assert other exemptions.” The denial was affirmed in an administrative appeal because, the SEC said, its Enforcement Division staff was still investigating other entities for possible similar violations.
The ASA turned to an activist conservative boutique firm, Consovoy McCarthy, to file the lawsuit.
“The SEC never asserted that the [ongoing] investigations were factually related in any way” to the dozens of closed cases, ASA’s lawsuit said. Rather, “the SEC hypothesized that responding to ASA’s FOIA requests might allow others to ‘fabricate evidence, influence witness testimony, and/or destroy or alter certain documents,’ or ‘use the information in the documents to tailor the information they provide or withhold in negotiating possible settlements with the Commission.’”
FOIA requests to the federal government can be an important early warning of bad publicity, litigation to come, or uncertainties to be hedged and gamed out. In this case, the SEC’s total rejection of the request gave the ASA another platform for taking a stand, in a favorable court venue, against the SEC’s perceived regulatory overreach and what ASA’s lawsuit called “enormous” civil penalties.
“After the dust settles,” the ASA complaint said, “those who were targeted by the SEC are left to wonder how it all happened. Why did the SEC choose to target certain companies for suspicion-less investigations? How did the SEC arrive at the penalties it imposed? . . . Moreover, the SEC has no published guidelines or formulae explaining why it threw the book at one company while giving another similar company a slap on the wrist. To the public and the regulated community, the SEC appears to set the dollar amount of fines in each case inconsistently and unpredictably.”
“The SEC has failed to comply with its FOIA obligations,” ASA President Chris Iacovella said in a statement, “and that is why ASA filed this lawsuit. The American public must have transparency into the SEC’s enforcement process.”
Update: The Supreme Court agreed to hear a case that we wrote about last month. FDA v. Wages and White Lion points a dagger at the heart of the Food and Drug Administration’s authority to regulate flavored e-cigarettes and vaping products. Expect a decision next year. (See “Big Money at the Table as Vapers Roll the Dice.”)
FOIAengine access now is available for all professional members of Investigative Reporters and Editors, a non-profit organization dedicated to improving the quality of journalism. IRE is the world’s oldest and largest association of investigative journalists. Following the federal government’s shutdown of FOIAonline.gov last year, FOIAengine is the only source for the most comprehensive, fully searchable archive of FOIA requests across dozens of federal departments and agencies. FOIAengine has more robust functionality and searching capabilities, and standardizes data from different agencies to make it easier to work with. PoliScio Analytics is proud to be partnering with IRE to provide this valuable content to investigative reporters worldwide.
To see all the requests mentioned in this week’s story, log in or sign up to become a FOIAengine user.
Next from FOIAengine: With pharmacy benefit managers under FTC scrutiny, FOIA requests reveal clues.
John A. Jenkins, co-creator of FOIAengine, is a Washington journalist and publisher whose work has appeared in The New York Times Magazine, GQ, and elsewhere. He is a four-time recipient of the American Bar Association’s Gavel Award Certificate of Merit for his legal reporting and analysis. His most recent book is The Partisan: The Life of William Rehnquist. Jenkins founded Law Street Media in 2013. Prior to that, he was President of CQ Press, the textbook and reference publishing enterprise of Congressional Quarterly. FOIAengine is a product of PoliScio Analytics (PoliScio.com), a new venture specializing in U.S. political and governmental research, co-founded by Jenkins and Washington lawyer Randy Miller. Learn more about FOIAengine here. To review FOIA requests mentioned in this article, subscribe to FOIAengine.
Write to John A. Jenkins at JAJ@PoliScio.com.
