The Probes Reporter™ Watch List tracks those companies involved in undisclosed SEC investigative activity. Names are added to and removed from this list frequently based on responses we receive to Freedom of Information Act (FOIA) requests we file with the SEC. This is our latest update.
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.
See below for the difference between a "Possible" versus "Confirmed" SEC probe.
Kinder Morgan Management LLC (KMR): In a letter dated 15-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 Kinder Morgan Management. 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.
With this response from the SEC, which pertains solely to our FOIA request made on Kinder Morgan Management, it now appears all four companies involved in the Kinder Morgan consolidation are under the SEC's microscope.
This summer we confirmed undisclosed SEC investigations for each of Kinder Morgan Energy Partners (KMP), Kinder Morgan, Inc. (KMI), and El Paso Pipeline Partners, LP (EPB). The only one we had not researched was Kinder Morgan Management (KMR).
For more, see our report published in August, "In the News: Kinder Morgan & El Paso - The Undisclosed SEC Investigations, Past & Present".
This isn't the first time Kinder Morgan entities have not disclosed SEC probes. We found two undisclosed SEC probes from the past, one of which was formal. Again, see our report from August for more on this.
As a reminder, on 11-Aug-2014, Kinder Morgan announced a deal that will bring three additional companies under the Kinder Morgan Inc. umbrella. On the day it was announced, Rich Kinder's personal wealth was reported to have increased by over $1 billion on the news.
Our Take: Something clearly has the attention of the SEC across the entire Kinder empire - and still appears to, at least as of 15-Sep-2014. With a massive deal only recently announced, and all this implies, we believe the materiality threshold has lowered for this company. In other words, it's now well-past time the company speaks to this.
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.