D.C. Circuit: FINRA arbitration stays secret

Pub. Investors Arbitration Bar Ass'n v. SEC, No. 13-5137 (D.C. Cir. Nov. 14, 2014).

The Freedom of Information Act, or FOIA, commands the federal government to make its records available to the public. But it also contains a number of exemptions that protect certain categories of records from disclosure. One of those exemptions—Exemption 8—protects records “related to examination … reports prepared by … an agency responsible” for regulating financial institutions. 

That’s the statutory background to this case, in which an association of lawyers asked the Securities and Exchange Commission to produce certain records related to its supervision of FINRA. The SEC refused.

FINRA is a so-called “self-regulatory organization” that regulates the doings of its members, who are securities brokers and dealers. Much of what FINRA does is to arbitrate disputes between brokers and dealers, on the one hand, and consumers, on the other. The records the lawyers requested have to do with the SEC’s supervision of how FINRA manages its arbitrators, who are often thought to systematically favor the financial industry over consumers.

The SEC claims that Exemption 8 protects from disclosure the records the lawyers have asked for. The lawyers, for their part, argue that Exemption 8 doesn’t apply because the records have no bearing on FINRA’s financial transactions or fiscal condition—they are not at all like bank examiner reports, the paradigmatic kind of record protected by Exemption 8. 

The D.C. Circuit sides with the SEC, noting the broad language of Exemption 8 and Congress’s decision in 2010 to confirm the courts’ correspondingly broad interpretation of that Exemption. Judge Janice Rogers Brown concurs, but urges Congress to revisit Exemption 8, arguing that the breadth of its exception threatens to swallow up the normal rule of disclosure.