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.   

Amazon (AMZN) and Google (GOOG): Random Thoughts. Google reported disappointing earnings last week.  Amazon did the same after the close yesterday.  We received confirmation of an undisclosed SEC investigation of Google as of 09-Jun-2014.  For Amazon is was as of 16-Jul-2014.  While we cannot definitively say there is a connection between these data points, we nonetheless start to become suspicious when companies with undisclosed SEC probes start missing earnings.  You should too. 

The only way to bring clarity to this is for investors to insist those companies on which we issue these warnings speak to them directly.  Investors have every right to hear, even if deemed minor, exactly why it is the SEC finds it necvessary to say, as was said in these two cases, "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."  

Best Buy Co., Inc. (BBY): Possible Undisclosed SEC Investigation. In a letter dated 10-Sep-2014, the SEC cited the "law enforcement exemption" of the FOIA as basis to deny the public access to the detailed records we sought on this company.  As a matter of law, they are acknowledging some sort of investigative activity.  No disclosures of SEC investigative activity were found in the past two years of this company’s SEC filings.  We filed an administrative appeal to challenge this denial.  In our experience, about two-thirds of these SEC responses are confirmed on appeal. 

Ford Motor Company (F): Possible Undisclosed SEC Investigation & Documents provided from a closed probe. In a letter dated 08-Sep-2014, the SEC cited the "law enforcement exemption" of the FOIA as basis to deny the public access to the detailed records we sought on this company.  As a matter of law, they are acknowledging some sort of investigative activity.  No disclosures of SEC investigative activity were found in the past two years of this company’s SEC filings.  We filed an administrative appeal to challenge this denial.  In our experience, about two-thirds of these SEC responses are confirmed on appeal. 

The documents provided are a cover letter and subpoenas that were sent to Ford on 26-Jul-2012.  Spanning 23 pages, they pertain to a closed formal SEC probe entitled, "In the Matter of KPMG LLC Certain Auditor Independence Issues". 

These documents detail what records Ford was required to produce.  They also give a sense of concerns the SEC had about Ford's relationship with KPMG.  We added those 23 pages to our database.  Ford claimed 180 pages of records it provided to the SEC were confidential and not to be released under the FOIA.  This is not an unusually large claim for a company to make, which suggests the assertion is likely legitimate, so we did not challenge it.

Gap, Inc. (GPS):  Confirmed Undisclosed SEC Investigation. In a letter dated 07-Aug-2014, the SEC cited the "law enforcement exemption" of the FOIA as basis to deny the public access to the detailed records we sought on this company.  As a matter of law, they are acknowledging some sort of investigative activity.  We filed an administrative appeal to challenge this denial.  In our experience, about two-thirds of these SEC responses are confirmed on appeal.  This is one of them. 

In a letter dated 10-Sep-2014, the SEC confirmed that this company was somehow involved in a recently active and ongoing investigation.  A confirmed investigation is the highest standard we can achieve regarding undisclosed SEC activity at a public company.  No disclosures of SEC investigative activity were found in the past two years of this company’s SEC filings. 

KeyCorp (KEY):   Confirmed Undisclosed SEC Investigation With Commentary.  Apparently, KeyCorp is playing some disclosure games with investors.  In a letter dated 19-Aug-2014, the SEC cited the "law enforcement exemption" of the FOIA as basis to deny the public access to the detailed records we sought on this company.  As a matter of law, they are acknowledging some sort of investigative activity.  We filed an administrative appeal to challenge this denial.  In our experience, about two-thirds of these SEC responses are confirmed on appeal.  This is one of them. 

In a letter dated 10-Sep-2014, the SEC confirmed that this company was somehow involved in a recently active and ongoing investigation.  A confirmed investigation is the highest standard we can achieve regarding undisclosed SEC activity at a public company.  No disclosures of SEC investigative activity were found in the past two years of this company’s SEC filings. 

Here’s what KeyCorp has disclosed:  In the 10-Q filed on 30-Apr-2014 KeyCorp disclosed that (as of March 31, 2014), the company is involved in regulatory/government investigations, both formal and informal. 

In the 10-Q filed on 4-Aug-2014, the company changed disclosure language saying that the investigations may involve both formal and informal proceedings, by both government agencies and self-regulatory bodies. 

Nowhere in the filings we reviewed does KeyCorp directly name the SEC as one of those government agencies or bodies investigating it.  Why?  We've seen this ploy often:  Public companies want credit for disclosing material exposures but don't want to have to explain themselves.  Thus, no prominence, no clarity.  What does this mean to you?  It means KeyCorp has disclosed a material exposure you can't analyze.  In those cases, we see no need to take on the risk.  Next.

Nuance Communications (NUAN):  Possible Undisclosed SEC Investigation. In a letter dated 10-Sep-2014, the SEC cited the "law enforcement exemption" of the FOIA as basis to deny the public access to the detailed records we sought on this company.  As a matter of law, they are acknowledging some sort of investigative activity.  No disclosures of SEC investigative activity were found in the past two years of this company’s SEC filings.  We filed an administrative appeal to challenge this denial.  In our experience, about two-thirds of these SEC responses are confirmed on appeal. 

Omnicare, Inc. (OCR):  Possible Undisclosed SEC Investigation. In a letter dated 05-Sep-2014, the SEC cited the "law enforcement exemption" of the FOIA as basis to deny the public access to the detailed records we sought on this company.  As a matter of law, they are acknowledging some sort of investigative activity.  No disclosures of SEC investigative activity were found in the past two years of this company’s SEC filings.  We filed an administrative appeal to challenge this denial.  In our experience, about two-thirds of these SEC responses are confirmed on appeal. 

See below for the difference between a "Possible" versus "Confirmed" SEC probe.   
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No Recent SEC Investigative Activity Found

No SEC Investigative Activity: As of the date of the SEC response in the table below, we received information from the SEC to suggest the absence of recent SEC investigative activity on the following companies:

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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.  To learn more about the law enforcement exemption specifically, see also Department of Justice Guide to the Freedom of Information Act, Exemption 7(A). 

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.