August 19, 2015 / 6:06 PM / 3 years ago

Hedge fund manager who beat insider-trading charges now battles SEC for records

WASHINGTON (Reuters) - Hedge fund manager Nelson Obus spent 12 years battling the Securities and Exchange Commission until he was finally vindicated last year when a jury found him not liable for insider-trading charges.

Now, Obus and his firm Wynnefield Capital Inc are waging a new kind of battle with the agency in an effort to gain access to government records at the heart of the SEC’s failed case against him.

He is taking the agency to task for how it complies with the Freedom of Information Act (FOIA), a law designed to help the public gain access to government records, after the SEC denied him access to about 95 percent of the files he requested through FOIA.

Obus is among a growing number of critics who say government agencies like the SEC are abusing the FOIA process by often taking advantage of exemptions in the law so they can shield information or failing to do proper searches for records.

“The exemptions and the delays - and Mr. Obus’s case shows both - are overly used,” Republican Congressman Darrell Issa of California told Reuters. “The exemptions and the delays are designed to allow bureaucrats to escape any kind of judgment for what they have done,” he added.

In 2009, former Attorney General Eric Holder also called for federal agencies to apply a “presumption of openness” in how they administer FOIA, meaning that when discretion can be applied, agencies should err on the side of disclosure.

Issa, along with Democrat Elijah Cummings of Maryland, introduced a bill in the U.S. House of Representatives that would require government agencies to apply a presumption of openness. A similar bill with bipartisan support has also been introduced in the U.S. Senate.

Obus, Wynnefield and several others were charged in 2006 with trading in advance of a 2001 takeover of industrial products supplier SunSource Inc. A jury found all defendants not liable for insider trading in May 2014.

Obus, who wants to find out more about the SEC’s decision to pursue its case against him, was first told that he would need to wait two years for the SEC to process 6.4 boxes of records unless he narrowed the request to speed things up

But even after whittling it down and going through an initial first round of appeals, the SEC so far has only fully released 83 records of the 2,000 documents.

The SEC told Obus that most of the records are exempt from FOIA on a number of grounds, including privacy and claims that the records involve privileged interagency communications.

“If the FOIA bureaucrats simply use a multitude of exclusions to prevent citizens from receiving even a shred of information in the event of federal agency overreach like my case, then the whole act is nothing but a farce,” Obus told Reuters.

An SEC spokesman declined to comment on Obus’s request, but noted that the SEC is “proud of our FOIA record and our practice of making extensive information public.”

The SEC processed 14,757 requests in fiscal 2014. Of those, 2,488 were granted in full and 464 were partially granted. The rest were denied on a variety of grounds, most often because the SEC claimed no relevant records existed, according to the agency’s report.

Government agencies are entitled to withhold information under a variety of exemptions, including when the records pertain to active investigations, national security or may violate privacy.

Another exemption, known as the “catch-all” exemption 5, also lets agencies withhold records that involve internal deliberations or discussions.

This exemption has come under increasing scrutiny by lawmakers who say that too often, the government uses the exemption to avoid embarrassment.

The SEC, in particular, has been criticized for lacking clear rules and failing to process requests in a timely fashion.

In a 2015 study by the Center for Effective Government, the SEC received a D- grade, one of the lowest on a list of 15 federal agencies that receive the most FOIA requests. Government agencies with worse scores than the SEC were the Department of Health and Human Services and the State Department.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below