Why the SEC is keeping the public in the dark on Wal-Mart by Eleanor Bloxham @FortuneMagazine April 22, 2015, 1:36 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons There’s been a lot of hullabaloo lately about the release of records by presidential candidates like Jeb Bush and Hillary Clinton. In certain circles, the notion of spreading some sunshine—offering transparency and open access to public records—has garnered major support. An ongoing lawsuit in middle Tennessee U.S. district court, filed by law firm Robbins Geller against the SEC, represents just how important such access can be. The lawsuit seeks documents that the SEC has refused to provide as part of a Freedom of Information Act (FOIA) request. The investor protection agency says it can’t release the documents because they are part of an ongoing investigation and release of the documents would impede their efforts. SEC spokesperson John Nester told me that the SEC couldn’t comment on the investigation or the case beyond the court filings. Government agencies routinely attempt to brush off public requests for documents. But in this case, the documents concern the alleged Wal-Mart Mexico bribery scandal, which I wrote about twice for Fortune in May 2012 following the New York Times investigation and articles. This isn’t the first time that there have been difficulties obtaining documents about what happened at Wal-Mart in 2005—and who knew what and when. In 2012, members of Congress complained about their own difficulties in obtaining documents from the retail giant related to the alleged corruption charges. The correspondence Congress eventually received seemed to contain smoking guns. In January 2013, representatives Elijah Cummings and Henry Waxman reported that emails they received demonstrated that then-Wal-Mart CEO Mike Duke knew as early as 2005 about the alleged illegal payments to Mexican officials to secure construction permits. “Contrary to Wal-Mart’s public statements, the documents appear to show that you were personally advised of the allegations in October 2005,” they wrote in a letter to Duke. Trudy Perkins, a spokesperson for Cummings, did not respond concerning any further actions Congress may have taken since. The FOIA-related court case raises a number of questions. Do the assertions made by the SEC make sense? Robbins Geller partner Jason Forge said that, from the beginning, the SEC argued that giving up the documents could harm their investigation of Wal-Mart. But Robbins Geller only seeks the documents already provided by the subject of the investigation, Wal-Mart. How could it hurt the investigation against Wal-Mart if Wal-Mart already has these documents? Is the SEC really conducting an investigation? As the case has moved forward, Forge told me, they learned from the SEC’s own filings that the agency had not reviewed many of the Wal-Mart documents. In a court filing, Robbins Geller wrote: Other than withholding them from the public, it is hard to imagine what the SEC has been doing with the Walmart Documents for over 40 months. Despite representing over two years ago that every single one of the Walmart Documents ‘could reasonably be expected to interfere with enforcement activities’ … if released, it is now apparent that the SEC has yet to even read ‘many’ of these withheld documents. Indeed, the SEC’s supplemental submission reveals that ‘[m]any of these documents are not in English’ and that the SEC has yet to translate them. So, the SEC has not been reading the Walmart Documents, and we know that it has not used them for any actual enforcement proceedings because it has yet to commence a single enforcement proceeding, despite having had well over three years to do so. If the SEC is conducting an investigation into Wal-Mart’s activities and disclosures, why is the investigation taking so long? Given the assertions by members of Congress in 2012, and the emails that are already in the public domain, the sluggishness is concerning. Forge, a former federal prosecutor for 12 years, said that he finds the slowness appalling, describing the way the Wal-Mart bribery investigation has been handled as shameful. Forge told me that he wrapped up a conviction of Dusty Foggo, an executive director of the CIA, in less time than the SEC has taken so far with the Wal-Mart investigation—and the Foggo case involved classified documents. Is the SEC taking the FOIA court case seriously? The SEC certainly got off to a slow start. In December, the first document the Department of Justice (which is representing the SEC) issued in response to Robbins Geller’s complaint seemed like a brush-off. It used 25 paragraphs to provide a variation of only three responses. The primary response was that “no response is required.” The other two responses were that the SEC “lacks knowledge or information sufficient to admit or deny the allegations” and that the SEC denies that Robbins Geller is “entitled to any relief.” Robbins Geller pressed forward and on March 9, the DOJ issued a more complete document, requesting “to resolve the lawsuit in a piecemeal fashion” which would allow the SEC “to draw out the litigation for many months, if not longer,” Law 360 reported.The article quoted University of Denver law professor Margaret Kwoka saying that “the SEC’s position ‘is outrageous.’” On April 8, the judge issued a ruling that laid out a schedule for how the case will proceed, including completion of all document discovery by August 5. What happens next will depend on the SEC’s next move, Forge told me, and may be determined as early as the end of this month. I asked the DOJ several questions about the case and their own possible investigation of Wal-Mart. DOJ spokesperson Nicole Navas wrote me in an email: “We decline to comment on the pending FOIA litigation. As a matter of policy, the department generally neither confirms nor denies the existence of an investigation.” By not providing the documents requested, is the SEC effectively shielding Wal-Mart from liability in other cases? Investors, represented by Robbins Geller, have brought a case in U.S. Western Arkansas District court against Wal-Mart for its alleged failures to disclose what the company knew about its bribery activities. If the SEC were slowing down that case, it would be contrary to its stated mission to protect investors and ensure the viability of the capital markets. Transparency is one way to promote trust in those markets. Is there really something here worth pursuing? Judges in Arkansas think so. In May 2014, federal magistrate judge Erin Setser wrote that the investors had “sufficiently alleged that omission of the 2005 revelation of the suspected corruption and [Wal-Mart’s] 2005 and 2006 investigation rendered [Wal-Mart’s] statements in the Form 10-Q materially misleading to a reasonable investor. “[D]isclosure of the 2005 and 2006 events would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.” How can this be resolved? For pure free market capitalists, plaintiff’s bar firms like Robbins Geller are the ultimate solution. Unlike white shoe law firms, these gritty rivals put their own capital at risk and earn a living based on the outcomes. In the Arkansas case, the law firm is putting capital at risk to gain a settlement for the City of Pontiac Retirement System. Of course, the public is entitled to an investor protection agency that boosts trust in the the capital markets and rigorously pursues large corporations that fail to meet acceptable disclosure standards. But too often the plaintiff’s bar has to step in where the SEC fails to tread, making it all the more important that the “sunshine” the SEC advocates be applied to itself. Given the lollygagging, in the name of investor protection, the SEC should walk the documents over to Robbins Geller post haste. The City of Pontiac’s retirees—and the public as a whole—deserve no less. Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://www.thevaluealliance.com), an independent board education and advisory firm she founded in 1999. She has been a regular contributor to Fortune since April 2010 and is the author of two books on corporate governance and valuation.