Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, March 18, 2013

FINRA's Arbitration Records Exempt from FOIA Disclosure: D.C. District Court

The D.C. district court recently rebuffed the efforts of an association of attorneys who represent public investors in securities arbitrations to obtain records related to the SEC's oversight of the FINRA arbitration forum under the Freedom of Information Act.  Public Investors Arbitration Bar Association v. SEC (No. 11-2285(BAH), Mar. 14, 2013).  Plaintiff sought records related to the arbitrator selection process of FINRA.  The court agreed with the SEC that the records were exempt under FOIA Exemption 8, which exempts from disclosure any matters "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." (Download PIABA.SEC)

The dispute centered on whether the records sought by plaintiff are "related to examination, operating, or condition reports prepared by, on behalf of, or for the use of" the SEC.  The court based its decision on the "plain meaning" of the exemption, as well the legislative purpose behind the exemption, which is to safeguard the relationship between the financial institution and its supervising agency, to ensure the institution's continuing cooperation.

The court also addressed an issue that the parties did not address: the definition of "financial institution" and its application to FINRA.  The plaintiff conceded that FINRA was a "financial institution" for purposes of Exemption 8, based on a 2010 amendment to the Securities Exchange Act.  The Court first reviewed the short history of in Dodd-Frank section 9291, which provided that the SEC shall not be compelled to disclose records obtained for regulatory and oversight activities.  Only a few months after its enactment, Congress repealed section 9291 because of its concern that it allowed the SEC to keep secret virtually any information it obtained through its examination authority.  However, at the same time it repealed section 9291, Congress amended the Securities Exchange Act to clarify that "any entity the SEC regulates under the Securities Exchange Act will be considered a financial institution for the purpose of FOIA Exemption 8."  The court expressed its puzzlement: "Congress appears to have given back with the FOIA what it simultaneously intended to take away by repealing Section 9291."  The Court also expressed skepticism that a self-regulatory organization like FINRA would qualify as a "financial institution" as that term is normally understood.  Nevertheless, it concluded that plaintiff's arguments about an overly broad exemption must be made to Congress, given the broad language.

Judicial Opinions, Securities Arbitration | Permalink

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