He Lost, but Public Still Won
By Neal St. Anthony, Star Tribune
September 6, 2007
At first glance, it appears that the Securities and Exchange Commission defeated the nearly three-year lawsuit brought by John Gavin's tiny SEC Insight Inc., a research firm in Plymouth that routinely seeks information in SEC files through the Freedom of Information Act (FOIA).
Indeed, the SEC claimed victory, through a spokesman, after U.S. District Judge Paul Magnuson ruled last month that the agency doesn't face sanctions, nor must it pay fines or Gavin's legal expenses. But investors are better off for Gavin's dogged pursuit of the case.
At issue was whether the government had to promptly and fully disclose documents indicating whether it is investigating several dozen publicly owned companies -- information critical to Gavin's 25 institutional-investor clients who want insight into regulatory troubles that can make or lose a lot of money for shareholders.
The SEC's business is seeing that public companies fully and promptly get important information to investors.
But the agency itself is notoriously slow and unresponsive when it comes to disclosing the people and reasons behind an investigation of a company or individuals.
The SEC argued that any related disclosures aren't anybody else's business until it's completely done and has reached an agreement or prepared a civil case against a target.
But investors are constantly gleaning information from lawyers, speculators, analysts and others who may have insight into SEC investigations. Gavin decided that any citizen should be able to learn what was going on through freedom of information requests for correspondence and related communications.
'Glomar exemptions'
Before Gavin came along, the SEC routinely issued blanket denials of freedom of information requests under "Glomar exemptions." History buffs will remember the CIA's secret submarine-retrieval ship of the early 1970s, called the Glomar Explorer, owned by Howard Hughes. That agency consistently declined to "confirm or deny" all inquiries regarding the ship, a government practice that is now known as a "Glomar response" or as "Glomarization."
But Magnuson forced the SEC to either disclose the information Gavin sought or provide detailed explanations that it was exempt from disclosure because it was engaged in ongoing investigations. No more blanket denials.
And the SEC two years ago started to routinely post "comment letters" in response to corporate filings on its website, although the government is loath to give Gavin credit.
"Despite the court denying his summary judgment motions, Gavin substantially prevailed in this action because his vigorous prosecution of the action compelled the SEC either to produce the requested records or apply proper FOIA exemptions," Magnuson ruled.
"The SEC contends that it released most documents because it closed the investigations in the normal course of business -- not because Gavin sued. The court disagrees," Magnuson wrote. "When Gavin commenced this action, he had received no information on any request at issue."
But the costly and time-consuming case, on top of problems with a couple of Web design firms engaged in an overhaul of Gavin's site, almost caused the three-person firm to shut down.
The added stress helped Gavin, a born-again fitness buff, take off 25 pounds this summer. His wallet is lighter and so is he, thanks partly to the SEC.
He also concluded that he lacked the time and energy to continue as a volunteer firefighter after 20 years of service to Plymouth and a previous community in his native New England.
Gavin said he didn't get shut out by the government, even though he lost money. Meanwhile, he's gearing up a new online service for subscribers that he will launch this month.
It's called Disclosure Insight, said Gavin, who was a stock analyst at American Express Financial Advisors. The new service will be a risk-rating system of select companies based on five-year indicators such as executive turnover, the history with its auditors and regulators.
"This won't stop here," Gavin said Thursday. "The early feedback on our prototype [report] is encouraging."
Gavin, who charges subscribers as much as $50,000 annually for SEC Insight services, said Disclosure Insight, which took more than a year to design, will cost about $7,500 per user.
Gavin said that the inaugural product will focus on Standard & Poor's 500 companies and that the service will save institutional investors as much as 50 hours of work on each company. |
