Buried in the massive Dodd-Frank financial law is a section that could prevent the public from obtaining records the government collects as part of its new oversight of hedge funds and other private funds managed by investment advisers.

Section 404 remained unchanged when Congress last fall repealed another part of the Dodd-Frank Wall Street Reform and Consumer Protection Act–section 929I--that had provided a massive exemption from the Freedom of Information Act (FOIA) for the Securities and Exchange Commission (SEC).

Congress approved that repeal under tremendous pressure after Fox Business News reported that the SEC had cited the new exemption in a relation to a 2009 FOIA request filed by the news organization requesting documents about the alleged Stanford Ponzi scheme scandal. Open government groups—including the Sunlight Foundation—joined in the cry to overturn this part of the Dodd-Frank law, which also appeared to protect the SEC from third-party civil lawsuits requesting information.

However, Congress did not touch this other FOIA exemption, which says that “information, reports, documents, records, or information,” collected by financial agencies in their capacity of overseeing these investment advisers is exempt from FOIA.

“We were not able to get any traction on [section 404],” says Angela Canterbury, director of Public Policy for the Project on Government Oversight (POGO). In her testimony before the House Financial Services Committee last September, Canterbury had called on Congress to repeal section 404.

She added that section 404 also might provide a similar way for agencies to avoid information requests as part of third-party lawsuits, and noted that the law failed to specify that section 404 was meant to be a so-called “b(3)” exemption. Exemption 3 under the FOIA law permits agencies to withhold information that is specifically exempted by statute. Since the passage of the 2009 OPEN FOIA Act, however, Congress is required to explicitly state its intention to provide such an exemption—which it does not do in section 404.

Canterbury and other FOIA experts contacted say it is difficult to determine how severely section 404 will restrict the public’s access to information, although they all agree that as written it does not seem as expansive as the other controversial section that Congress repealed. 

Bob Gellman, who advises corporations and government agencies about personal privacy policies, says that the type of information described by section 404 may well be covered by existing FOIA exemptions, such as exemption 4, which allows agencies to withhold “proprietary information,” or trade secrets from disclosure under FOIA.

Another long-standing exemption under the open information law says that any information collected in the oversight of financial institutions does not need to be disclosed. Traditionally, this exemption applied to examinations of federally insured banks, for fear that disclosure of such information would cause a run on a bank. However, in the courts have interpreted this exemption broadly to include other financial institutions, not just banks. Indeed, in repealing section 929l of the Dodd-Frank law, Congress specified that entities overseen by the SEC qualify as financial institutions under FOIA.

Not all are sanguine about the legitimacy of using this section 8 exemption under FOIA to withhold information about financial institution examinations. In her testimony, Canterbury pointed out that the SEC had invoked this exemption to redact the name of a particular examinations program mentioned in a report by the agency’s inspector general. The SEC Office of Inspector General had found that the agency’s Fort Worth Regional Office had retaliated against employees who had raised concerns about this program, arguing that it would divert staff attention away from serious fraud and force them to concentrate on superficial enforcement. These employees had also raised flags about alleged fraud by Stanford.

And in 1995, in the wake of the savings & loan crisis, the Administrative Conference of the United States noted that exemption 8 “provides an unusual level of protection to banks and bank regulatory agencies…The upheaval faced by financial institutions in the last decade and the number of such institutions that have failed makes availability of information relating to the regulation of that segment of the economy of particular interest. A substantial amount of taxpayer money has been spent to alleviate problems relating to financial institutions.”

Gellman, who had a long career as a staffer on Capitol Hill specializing in privacy matters, said often these exemptions make it into law because staffers don’t necessarily understand how FOIA works. “Industry screams and objects, well we want some kind of protection for the data, so we’ll give you what you want, and you get a provision [like this] a lot of times sail on through.”

Indeed, in recent years Congress has included FOIA exemptions in a long list of laws, from information about chemical facility security to animal identification systems to food safety to infrastructure protection, according to the Congressional Research Service.