SEC Faces Lawsuit from ASA Over Lack of Compliance with FOIA Requests

The ASA is suing the SEC for not complying with FOIA, seeking transparency on enforcement actions, and withholding documents related to broker-dealer penalties.

The American Securities Association (ASA) has launched legal action against the U.S. Securities and Exchange Commission (SEC) over allegations of non-compliance with the Freedom of Information Act (FOIA). Eleanor Terrett, a Fox Business journalist, disclosed the development .

🚨NEW: The American Securities Association is suing the @SECGov for a “lack of transparency” surrounding its enforcement actions and failing to respond to FOIA requests.

Full complaint filed this morning here: https://t.co/lQbCCPCn4b

— Eleanor Terrett (@EleanorTerrett) June 6, 2024

The ASA contends that the SEC has been opaque in its enforcement activities and has not responded adequately to FOIA requests, particularly regarding settlements imposed on broker-dealers.

Lack of Transparency in SEC Enforcement Actions

The ASA’s lawsuit, filed for declaratory and injunctive relief, criticizes the SEC for a perceived lack of transparency. According to the complaint, the SEC began investigations in the fall of 2021 into broker-dealers’ retention of “off-channel” communications, such as text messages on personal devices. 

These investigations led to substantial penalties, amounting to billions of dollars, on various broker-dealers. The ASA questions the SEC’s decision-making process, citing a lack of clear criteria for how penalties were calculated and the rationale behind targeting specific entities. The complaint highlights the need for transparency to build trust and promote fair dealing in the financial markets.

SEC’s Response to FOIA Requests

In response to the ASA’s FOIA requests for records related to these settlements, the SEC has invoked Exemption 7(A) of the FOIA, which allows withholding documents that could interfere with ongoing or prospective enforcement proceedings. However, the ASA argues that this exemption is inapplicable because the documents pertain to settled proceedings. 

The ASA maintains that the SEC’s refusal to release these documents, citing potential future enforcement actions against unrelated entities, sets a problematic precedent that could enable indefinite withholding of information. The SEC’s justifications have been described as generic and insufficient, failing to meet the high burden required to withhold documents under FOIA.

Impact on Financial Institutions and Public Trust

The ASA emphasizes that federal securities law is built on the principle of transparency, which is crucial for maintaining public trust and confidence in financial markets. The association’s mission includes promoting trust among investors and supporting efficient, balanced capital markets. 

By failing to disclose the requested records, the ASA argues that the SEC is not only violating FOIA but also undermining these foundational principles of transparency and accountability.

The lawsuit seeks to compel the SEC to fulfill its legal obligations and provide the requested documents, thereby ensuring that the public can scrutinize and understand the agency’s enforcement actions.

This lawsuit comes amid heightened scrutiny of the SEC, highlighted by a recent exchange between CNBC’s “Mad Money” host Jim Cramer and SEC Chair Gary Gensler.

In a viral video, Cramer told Gensler that the SEC lost its case against Ripple Labs, suggesting dissatisfaction with the outcome. This incident has further fueled discussions about the SEC’s enforcement strategies and transparency.