The Probes Reporter™ FOIA Update is designed to let you know of new documents and information we recently received from the SEC in response to our Freedom of Information Act requests, appeals, and follow-up activities. 

At present, this report is posted in real-time for free.  In the future, and by necessity, Probes Reporter will likely become a paid subscription service.  If we move toward a paid service, you should expect both timing and access to our content that you enjoy today for free will gradually change.

Probes Reporter FOIA Update

See below for the difference between a "Possible" versus "Confirmed" SEC probe.   

Air Methods Corp. (AIRM): Documents received from a previously undisclosed probe that is now closed. 

Sometime leading up to June-2013, Air Methods was involved in an SEC probe the company did not disclose (at least in our search going back to 2012).  We have no idea what it was about nor do we have enough information to even assess if investors might deem in meaningful. 

The only records we have from this closed probe of Air Methods are a letter sent to outside counsel for the company, dated 06-Jun-2013, a so-called Case Closing Report dated 14-Jun-2013. See below for a description of a Case Closing Report, and email exchanges between the SEC and outside counsel for the company. They name company accounting officers as scheduled to participate in a conference call with the SEC in Apr-2013 which gives suggestion this was somehow accounting-related.  All are posted.

We filed an administrative appeal to try and get the Case Closing Recommendation (also explained below) but fully expect it will be denied. 

What is an SEC Case Closing Report?

The name "Case Closing Report" sounds impressive enough.  However, in reality it is just the cover page for something called a "Case Closing Recommendation."  Despite our repeated efforts, the SEC adamantly refuses to release its Case Closing Recommendations.  All of the administrative appeals we file to get them are denied.  We only get the cover pages, a.k.a., Case Closing Reports.

Where the Case Closing Report identifies the name of the Matter that was investigated and the date it ended, it tells you nothing else of analytical value.  The Case Closing Recommendation, however, tells you a lot more.  The full report says why the investigation was opened, what took place, and what was found. 

One of the reasons the SEC denies our requests for Case Closing Recommendations is they claim they are "privileged". We don't buy this excuse for a second.  Neither should you.

This is because the SEC uses a dodge wildly popular among government agencies to block your access to these reports.  Every page, every single word; Nothing from a Case Closing Recommendation is ever released.

Here's how it works:  You make a FOIA request.  If the government just doesn't want to release the records, but otherwise has no legitimate reason under law to deny your access, they will then cite Exemption 5 of the FOIA to deny your request. 

Outside of government circles we commonly refer to Exemption 5 as the "Withhold It Because You Want To Exemption".  This link takes you to a story detailing efforts by the US Senate Judiciary Committee to rein-in excessive use of Exemption 5.  This Justice Department link gives you a legal overview of Exemption 5.

It takes tenacity, time, and money to push back on any FOIA exemption.  The government knows few can do that.  So the SEC dodges away, keeping you from seeing its Case Closing Recommendations.  This is true for any and all of its closed investigations.  We are sharply critical of the SEC for this blatant lack of transparency.

In the meantime, public companies continue to say whatever they want about their investigations.  Sometimes they say nothing.  In nearly 30 years of reviewing SEC filings and records acquired under the FOIA, we have yet to find a case where the SEC took a company to task on inadequate disclosures related to the risk posed by an SEC investigation.

So long as public companies know a Case Closing Recommendation won't come out later, they have no incentive to disclose more. As a result, investors are kept in the dark.

Imagine what would happen if the SEC started releasing those reports that tell you exactly why the investigation was opened, the work performed and the conclusions reached?  Public companies would likely start disclosing more.  The SEC itself would be held more accountable.  Dare we say it?  Perhaps, just perhaps, even public confidence in capital markets would be restored.   It’s time.

What’s the Difference Between a “Possible”
Versus a “Confirmed” SEC Investigation?

When we report on risk of undisclosed SEC investigative activity for a company, it is based upon a response from the United States Securities and Exchange Commission (SEC) to one of the approximately 2,500 Freedom of Information Act (FOIA) requests we file with the agency each year seek.  Our requests seek information concerning the conduct, transactions, and/or disclosures of public companies.

There are many legitimate reasons for the government to deny a FOIA request.  One reason often cited by the SEC is the so-called “law enforcement exemption” of the FOIA.   As a matter of law, the SEC is acknowledging some sort of investigative activity when it asserts this exemption. To learn more about FOIA exemptions, go to FOIA.gov (link is external).  To learn more about the law enforcement exemption specifically, see also Department of Justice Guide to the Freedom of Information Act, Exemption 7(A) (link is external). 

We know from experience there can be many reasons for the FOIA office of the SEC to assert the law enforcement exemption.  Some would be of little to no consequence to investors.  Others would be of great concern, and can have meaningful negative consequences for investors.

If the SEC cited the law enforcement exemption to deny the public access to records on a public company, and if no disclosures of SEC investigative activity were found in the past two years of this same company’s SEC filings, we then add the company to our Watch List as a company with a "Possible Undisclosed SEC Investigation". 

Again, to say a company has a possible SEC probe is not the same as when we say it has a "Confirmed Undisclosed SEC Investigation".  As we say in our reports, a confirmed investigation is the highest standard we can achieve regarding undisclosed SEC activity at a public company.  Here's why -- 

When the SEC asserts a law enforcement exemption, if warranted, we then file an administrative appeal with the SEC’s Office of General Counsel. The appeal process allows a different set of eyes within the SEC to manually review our request and the initial denial.  In response to our administrative appeal, the SEC typically does one of the following –

• The SEC can deny our appeal by saying, "We have confirmed with staff that the responsive matter remains open and that releasing the withheld information could reasonably be expected to interfere with the on-going enforcement proceedings." 
  
  This is why we say this is the  highest standard of affirmation we can achieve regarding undisclosed SEC activity at a public company.  We interpret this appeal response to mean the company is involved in an SEC investigation that somehow involves its conduct, transactions, and/or disclosures.   Companies on which we receive this response are maintained on our Watch List.
   
• The SEC may deny our appeal on grounds there are no records responsive to our request.  This may be because the Company was incidentally named or tangentially listed in an SEC investigation of some other person or entity; or, there was an investigation that concluded in the past but the SEC’s computerized records were not current at the time of our request.   Companies on which we receive this appeal response are removed from our Watch List.
   
• We may be informed the law enforcement exemption no longer applies and our request has been remanded back to the FOIA office for further processing.  We interpret this response to mean there was an investigation that is now over and records from that investigation may now be provided to us.  Companies on which we receive this appeal response are removed from our Watch List.
   
• Finally, the SEC could inform us the law enforcement exemption was cited in error.  We rarely see this but it does happen.  Companies on which we receive this appeal response are removed from our Watch List.

Notes: The SEC did not disclose the details on investigations referenced above. The SEC reminds us that its assertion of the law enforcement exemption should not be construed as an indication by the Commission or its staff that any violations of law have occurred with respect to any person, entity, or security.  New SEC investigative activity could theoretically begin or end after the date covered by this latest information which would not be reflected here.

To learn more on our process and what our findings mean, click here.