Pub. Investors Arbitration Bar Ass'n v. SEC, No. 11-285, 2013 WL 987769 (D.D.C. Mar. 14, 2013) (Howell, J.)

Thursday, March 14, 2013
Re: Request for records concerning SEC oversight of the Financial Industry Regulatory Authority ("FINRA"), "a nonprofit corporation that acts as a self-regulatory organization over all securities firms that do business with the public" Disposition: Granting SEC's motion for summary judgment and finding that SEC properly withheld records pertaining to the SEC examination reports of FINRA pursuant to Exemption 8
  • Exemption 8: After examining the plain language of the statute as well as its legislative history, "the Court holds that FOIA Exemption 8 broadly applies to records related to a regulatory agency's examination of a financial institution, including that financial institution's administrative functions or activities." As an initial matter, the Court notes that Exemption 8, which exempts 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'" by its plain language, covers more than just reports. Indeed, it "casts a wide net of non-disclosure over any documents that are logically connected to an 'examination, operating, or condition report.'" Here plaintiff sought records relating to the SEC's "audits, inspections, and reviews . . . all synonyms for 'examinations'" of FINRA's arbitration programs by the SEC's Office of Compliance Inspectors and Examinations ["OCIE"]. The court notes that "plaintiff concedes that "FINRA is a 'financial institution' as that term is used in Exemption 8" as it must do based upon recent amendments to the Securities Exchange Act of 1934 defining entities regulated, supervised, or examined by the SEC as financial institutions. The court declares that one of the legislative purposes of Exemption 8, "as the D.C. Circuit has put it, is to 'to safeguard the relationship between the banks and their supervising agencies.'" "Put another way, this purpose is 'to ensure that [financial] institutions continue to cooperate with regulatory agencies without fear that their confidential information will be disclosed.'" The court rejects plaintiff's attempt to interpret Exemption 8 as applying only when a financial transaction or condition of the regulated institution is implicated. As the court states, "Congress did not limit the exemption according to the function of the financial institution being examined. Rather, 'Congress looked to the nature and source of the material and determined to provide absolute protections regardless of the circumstances underlying the regulatory agency's receipt or preparation of the examination, operating or condition reports.'" Accordingly, the court concludes that Exemption 8 can be used to withhold records related to FINRA's "administrative functions or activities."
  • Adequacy of Search: The court grants summary judgment to the SEC with regard to its search for responsive records. The court opines that it is "skeptical that the adequacy of the SEC's search makes any difference in light of the fact that any records potentially responsive to the plaintiff's request would be categorically exempt from disclosure." The SEC submitted a sworn declaration explaining "that it 'searched all places within OCIE's records where it would reasonable to find responsive documents'" and gave a detailed explanation of where it searched. Noting that "plaintiff points to no aspect of [the SEC's] search that was inadequate, . . . the Court concludes that, absent some identifiable deficiency in the SEC's process, the agency's search efforts were sufficient to comply with its FOIA obligations."
  • Vaughn Index: The court finds that a Vaughn Index was "unnecessary because the scope of the plaintiff's FOIA request necessarily renders all potentially responsive materials exemption from disclosure under Exemption 8."
  • Declaration/Responsiveness: The court also rejects plaintiff's arguments that the SEC's declaration is insufficient. As noted above, the court holds that the withheld documents do not have to concern "FINRA's financial condition or FINRA's financial transactions" to qualify for protection under Exemption 8. Next, the court notes that contrary to plaintiff's assertions, "the SEC's declaration avers that all of the potentially responsive records" relate to examinations conducted by OCIE. In addition, "Exemption 8 does not require the defendant to identify a specific report to which the information relates." Finally, the court rejects plaintiff's complaints that some of the information in the boxes located by the SEC may not be responsive. The court declares that "it is elementary that an agency's decision to withhold non-responsive material is not a violation of the FOIA."
Adequacy of Search
District Court
Exemption 8
Vaughn Index
Updated August 6, 2014