ASA hails victory vs. SEC in off-channel communications challenge

The American Securities Association has scored a partial win in a long-running fight against the Securities and Exchange Commission over what it argues has been an unfairly opaque process implemented during an industry-wide crackdown on recordkeeping violations.

A federal judge in Florida has ordered the SEC to turn over portions of internal penalty-calculation spreadsheets tied to its off-channel communications sweep, handing the ASA a key victory in a years-old challenge filed under Freedom of Information Act.

In a March 5 order, Judge Steven Merryday of the US 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 recodkeeping failures.

The case stems from the ASA’s 2024 FOIA complaint demanding insight into how the agency arrived at the billions of dollars in fines it had levied on firms for failing to retain business-related messages on personal devices and other unapproved channels.

In the final months of its enforcement under former SEC Chair Gary Gensler, the regulator levied a landmark $393 million penalty against just over a dozen firms, and issued a combined $63 million in fines against another 12 firms just before Gensler's resignation in January last year.

Read more: Why the off-channel comms problem is far from solved

According to the ruling, the SEC created spreadsheets containing publicly available financial, industry and personnel data for each firm, then grouped firms into “penalty tiers” that reflected either a potential fine under consideration or a final amount imposed after settlement. The agency withheld all of those documents under FOIA Exemption 5, arguing they were shielded by the deliberative-process and attorney work-product privileges.

Merryday drew a sharp distinction between data tied to unresolved investigations and data tied to completed settlements. He held that spreadsheet entries reflecting potential, still-unimposed penalties reveal the “evolving thoughts” and mental impressions of SEC enforcement lawyers and therefore qualify as protected opinion work product. By contrast, entries that memorialize a final, imposed penalty and the associated firm-specific data must be treated as factual work product that is subject to disclosure.

“The SEC must produce by use of redaction or other reasonable means each spreadsheet to the extent that each spreadsheet identifies, as of the date of the spreadsheet’s generation, an entity and attendant entity-data organized into a final, imposed penalty tier,” Merryday wrote. The agency, he added, may redact information tied to prospective penalties and any evaluative comments by staff.

ASA framed the decision as a victory for transparency around how regulators are using their enforcement powers.

“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,” ASA president and chief executive Chris Iacovella said in a statement on Friday.

He added that the association believes “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.”