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Advocacy Group Charges SEC with Withholding Docs Related to Internal Information Breaches

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The New Civil Liberties Alliance, a conservative civil rights organization, filed a complaint in federal court alleging that the Securities and Exchange Commission is withholding access to records concerning “a control deficiency,” where agency enforcement staff illegally downloaded and gained access to privileged adjudicative documents in the SEC’s in-house court system.

According to the group, the SEC has admitted this breach occurred in two adjudicatory matters, SEC v. Michelle Cochran and Jarkesy v. SEC, both major cases challenging the constitutionality of the SEC’s administrative proceedings, as well as other, undisclosed cases.

On July 12, 2022, NCLA submitted a Freedom of Information Act request to the SEC, seeking records of these “control deficiencies.” According to the filing, the SEC had learned of the “control deficiencies” by Fall 2021 and publicly acknowledged it on Apr. 5, 2022.

“SEC has breached every imaginable duty the law requires, under the IG statute, under FOIA, to fairly adjudicate claims it brings, and to deal honestly with those it litigates against,” said Peggy Little, senior litigation counsel, NCLA. “It’s defiance of law, delay, recalcitrance, and selective disclosure, not to mention a conflicted internal investigation it would never tolerate from a regulated party, call into question the entire inherently compromised enterprise of agency adjudication.”

According to a disclosure statement filed with the Supreme Court and the U.S. Court of Appeals for the Fifth Circuit, the SEC enforcement personnel accessed documents stored in the administrative adjudications section of the shared computer system that were created by SEC’s administrative law judges and their staff. Defendants Michelle Cochran and George Jarkesy were made aware of the commission’s breach when it was publicly disclosed.

The SEC hired outside investigators and conducted an audit and dozens of interviews, but the NCLA complains that critical details are still unavailable. The NCLA insists that rather than initiating an Inspector General investigation, as the law requires, the SEC hired the Berkeley Research Group, “a consultancy whose millions of dollars of other SEC business creates reason to doubt its objectivity.”

The NCLA also wrote that the SEC’s statement indicates that the “control deficiency” affected other enforcement actions but the SEC has not published a report yet.

NCLA’s FOIA request seeks disclosure regarding all affected matters. They believe the “SEC has failed to make a timely determination and to comply with other FOIA deadlines, placing the SEC in violation of both FOIA and the law requiring the inspector general to investigate.”

NCLA describes itself as a nonpartisan, nonprofit civil rights group founded to protect constitutional freedoms from violations by the “administrative state.”

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