Transparent New Year: SEC shows its work after CEI prodding

As we enter the New Year, it is important to reflect on what went well and not so well in 2023. We should do our best to acknowledge our mistakes and make the necessary corrections moving into 2024.

This concept ought to apply not only to individuals, but to organizations and government bodies. When looking to financial regulators like the US Securities and Exchange Commission (SEC), there were a host of unacknowledged mistakes made by the agency in 2023. In one instance – at least! – the SEC properly heeded public criticism to correct a prior mistake.

This correction pertains to the SEC’s online case database. In October, the SEC downgraded its website under the guise of improving it. The agency removed parenthetical descriptions of each of its catalogued adjudicatory orders and opinions. The SEC then restored its original website after outside pushback against the downgrade.

This restoration likely stemmed from an online complaint made by a former SEC attorney Russ Ryan. This complaint was reinforced by arguments raised in a recent blog post that I wrote. The SEC’s page for “opinions and adjudicatory orders” now provides a restored description of each matter.

I wrote that “the SEC’s algorithmic manipulation has made it even more difficult for members of the public to ascertain what the agency is up to” and pointed out that the SEC’s proposed website upgrade “has only complicated the search process for people to easily locate case-specific information.”

These descriptions are highly useful for providing visitors with quick, convenient references to SEC administrative law cases. For instance, descriptors would inform us about a pending case’s status and what stage of the review process it was in. The case status may range from an initial decision issued by an administrative law judge (ALJ) to a final decision rendered by the full Commission. Or, it may simply contain a procedural order by the ALJ, such as ordering a respondent to “show cause” for why an enforcement action shouldn’t happen.

In the absence of such descriptors, interested parties were left with only the name of each case. If they wanted to know the nature of the case itself, they needed to click on the provided link and individually download a PDF containing the relevant details. The smart reader may be thinking that doesn’t exactly sound like an upgrade and wondering why it was changed.

Perhaps the SEC website designers felt it useful to compartmentalize how cases are displayed. Their assumption might have been that most visitors wouldn’t actually pay attention to the parenthetical details of each adjudicatory matter. Perhaps the designers assumed that most visitors are not concerned with every case pending before the SEC but rather with only select cases. 

However, the change was a disservice to the many attorneys, researchers, and involved citizens who collect aggregate data on multiple SEC proceedings. Even former SEC officials like Ryan admits that it’s the subtle details—like these descriptors—that are very important to researchers when observing the SEC’s adjudicatory orders and opinions.

“Given how often I criticize the SEC, let me take this opportunity to give the agency credit for promptly fixing things and restoring this small matter of transparency,” Ryan stated.

The SEC’s website revision was hailed as a victory for transparency by an agency often criticized for obscuring its regulatory activities. This is also proof that pressure from former SEC officials and policy researchers can check bad bureaucratic behavior. As a federal agency, the SEC has an obligation to provide the public with updated information about its legal matters, which often involve disputes against public companies and individuals.

When the SEC conceals the details of its cases, concerned members of the public are left with an unclear picture of important legal developments. This concern extends to one of the SEC’s core responsibilities: to prevent market fraud via information asymmetry.

As a regulator, the SEC actively ensures that public companies do not obscure vital quantitative information about their stock offerings before interested investors. This prevents sellers from using their insider knowledge to take advantage of buyers on the market.

A similar standard of information asymmetry applies to the SEC itself. The Commission should always provide outsiders with basic, easy to access information about its adjudicatory orders and opinions so as not to foster an imbalance of knowledge. The public stands to benefit when this information is clearly framed online, especially for those with a stake in the dispute at hand.

The SEC perhaps realized this asymmetrical dilemma when it reversed its initial website downgrade.  

In that spirit, I would like to wish the SEC, fellow researchers, and readers a transparent New Year.