A Florida federal court has awarded the American Securities Association a key victory in the group's years-long challenge against the Securities and Exchange Commission for refusing to produce documents under the Freedom of Information Act related to how the agency calculated fines for off-channel communication violations.
In a March 5 order, Judge Steven Merryday of the U.S. District Court for the Middle District of Florida directed the SEC "to disclose sections of 52 spreadsheets used by enforcement staff to size monetary penalties against broker-dealers that either were under investigation or had settled over recordkeeping failures," according to Investment News.
Nick Morgan, president and founder of the Investor Choice Advocates Network, told ThinkAdvisor Wednesday the Florida ruling was "a significant win for transparency and a stinging rebuke of the SEC's litigation conduct. Judge Merryday didn't just rule against the agency — he excoriated it, calling the government's pivot on its legal theory 'unseemly,' 'unfair,' and 'an acute embarrassment to the United States, both to the agency and to the judiciary.'"
"We are pleased that a federal court in Florida agreed with the ASA about the SEC playing fast and loose with information that should have been made available to the public," Chris Iacovella, ASA's president and CEO, said in a statement. "The government used its vast power to disproportionately impose billions of dollars in fines on registered entities for administrative violations and then refused to disclose how those fines were calculated. This abuse of government power is an affront to the disclosure rights guaranteed to Americans by Congress, and the court's decision affirms that."
Valerie Mirko, partner and leader of the securities regulation and litigation practice at Armstrong Teasdale in Washington, added in another email: "Unusually, the off-channel cases included no investor harm or losses, yet the fines were historically outsized. Firms had no understanding of the basis for the fines levied or Commission calculations to determine fines. I am hopeful that as a result of this court decision the SEC further revises its 2015 penalty calculations as well as provide additional fairness-related enhancements to the [agency's] enforcement manual."
As the ASA lawsuit, filed in June 2024, laid out, the SEC began to investigate certain broker-dealers' retention of "off-channel" communications, such as text messages on personal devices, in September 2021.
ASA, a trade group representing regional financial services firms, sued the SEC in June 2024 for failing to produce documents under FOIA regarding the sweep.
The issue of how the SEC calculates penalties — particularly in the amounts at issue in the broker-dealer settlements, which reached $125 million for some big firms — should not be hidden from public examination and scrutiny, ASA argued.
ASA filed three FOIA requests for records in March 2024 concerning the SEC's "off-channel" communications sweep. The SEC, however, refused to produce any documents, according to the trade group.
"When you ask for that transparency and you don't get it, it leads you to believe something else is going on," Iacovella said in an SEC Roundup podcast. "The words arbitrary and capricious [continue] to come up as it relates to this [texting] fine structure."
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