SEC chief: Agency needs some secrecy

The SEC has 30 staff members handling FOIA requests, Schapiro said. Most requests are denied, primarily because the SEC does not have the requested information -- not because it's refusing to provide it, she added.

The SEC said that 64% of all FOIA requests are for information that doesn't exist - which happens sometimes when a company is doing due diligence on another company. Some 15% of all FOIA requests are granted in full, 5% are granted in part and 7% are denied in full, the agency said. In other cases, the FOIA requests are withdrawn, or the information being sought is already on the SEC's Web site.

At issue was a provision of the recently enacted Wall Street reform law. That section provides certain protections to the SEC, shielding it from the FOIA.

Schapiro said the SEC would want to shield certain "proprietary" information provided by finance companies. This includes "watch lists" that companies gather about other companies as well as the trading records of investment managers.

The proprietary information also includes custom-designed systems known as "trading algorithms" that are used by investment firms and kept secret from rival traders.

SEC: Investigations outrank media

"We felt that if we could not protect it from public exposure, they would suffer serious competitive harm," Schapiro said. "It's their trade secret; it's their formula for Coca Cola. If that information is made public, then other firms can trade on that information."

The information would be more difficult to extract if companies believed that it could be made public through FOIA, she said. She said she didn't want the SEC to "turn into a mechanism for suing firms just to get the production of these documents."

0:00/3:24SEC can't catch all Ponzi schemes

The issue of the SEC's ability to deny FOIA came to light after Fox Business sued the agency after trying, unsuccessfully, to obtain documents about the investigation of Ponzi schemer Bernard Madoff, who is currently serving a 150-year sentence. While the SEC insists that the new provision was not used to deny FOIA requests from Fox, it brought the issue in the limelight.

Four different bills have been introduced to rescind the provision.

"The SEC has already indicated its willingness to exploit this loophole," said Rep. Edolphus Towns, D-N.Y., who has introduced one of the bills. 

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