Lawmakers curb SEC power to keep secrets

NEW YORK (CNNMoney.com) -- Lawmakers moved Thursday to repeal a provision in the financial reform law that shields the Securities and Exchange Commission from requests under the Freedom of Information Act.

The provision had allowed the SEC to not disclose certain "proprietary" information it gathers on companies under its purview. The agency had argued that disclosing such information could hinder its investigations.

But the House approved a bill Thursday that would overturn the provision after the Senate passed it earlier this week. President Obama will have to sign the bill before it can be enacted.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee and one of the authors of the Wall Street Reform and Consumer Protection Act, welcomed the move.

"Our Senate colleagues acted first with legislation to solve the immediate problem, and we decided that the best way to proceed was to concur with the Senate so that the President could sign legislation that solves the immediate problem," Frank said in a statement.

"We have appreciated the opportunity to work with Congress on this legislation and will continue to work with lawmakers to ensure proper balancing of the public's interest in disclosure with effective supervision of the financial markets," SEC Spokesman John Nester said.

The issue of the SEC's ability to deny FOIA requests 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.

SEC Chairwoman Mary Schapiro defended the provision last week in testimony before a House committee.

She said companies would be less willing to share information with the SEC if they thought it could be disclosed to the public at a later date. In addition, she said companies could be put at a competitive disadvantage if certain "trade secrets" were revealed.

But critics say the provision gives the SEC too much power to withhold information from the public, and that repealing it will help promote transparency and expose corruption.

"By repealing this section, we have reaffirmed our commitment to ensure that the SEC will be held to the highest possible standard of accountability and transparency," said Rep. Darrell Issa, R-Calif., in a statement.