Opinion ID: 381789
Heading Depth: 1
Heading Rank: 4

Heading: cooperation between sec and justice

Text: 58 In its initial decision in this case a panel of this court ruled that the broad prophylactic rule enunciated in LaSalle is inappropriate where the SEC and the Justice Department are simultaneously pursuing civil and criminal investigations. Slip opinion at 18. The panel therefore affirmed the District Court and ordered enforcement of the SEC subpoena. Out of a concern that the SEC subpoena might somehow subvert the limitations of criminal discovery, id., however, the panel, with one judge dissenting, modified the terms of the subpoena enforcement order. It required that once the Justice Department initiates criminal proceedings by means of a grand jury, the SEC may not provide the Justice Department with the fruits of the Commission's civil discovery gathered after the decision to prosecute. Id. at 22. 46 We affirm the judgment of the District Court and reject the panel's modification. 59 First, we note that no party to this case had suggested or requested a modification such as that imposed by the panel majority, either in the District Court or in this court. 47 In supplemental briefs submitted to the en banc court both the SEC and Justice vigorously oppose the modification, while Dresser's support for it is lukewarm at most. Dresser had argued that the SEC investigation is flatly prohibited by the rule of LaSalle ; the panel's modification, according to Dresser, may have had a similar effect to that of LaSalle though not as assured in its operation. Supplemental brief of appellant Dresser Industries, Inc. at 30. Dresser characterized the panel's decision to relax the LaSalle rule as unsound, id. at 29, and described the motivating factor in the panel's decision the supposed need to protect the criminal discovery process    of the grand jury, slip opinion at 22 as irrelevant to this litigation. Supplemental brief of appellant Dresser Industries, Inc. at 9 n.16. The reactions of the parties, therefore, suggest that the panel's modification might serve more to impede securities law enforcement than to protect the interests of Dresser. 60 Second, we note that there is no support for the panel's modification in either the relevant statutes or legislative history. Both the '33 Act and the '34 Act and other statutes related to securities law enforcement as well 48 expressly authorize the SEC to transmit such evidence as may be available    to the Attorney General, who may, in his discretion, institute the necessary criminal proceedings under this subchapter. Section 20(b) of the '33 Act, 15 U.S.C. § 77t(b) (1976); Section 21(d) of the '34 Act, 15 U.S.C. § 78u(d) (1976). The statutes impose no limitation on when this transmittal may occur. The parties have not cited any portions of the legislative histories of these Acts relevant to this question, nor have we found any. But the SEC and Justice find considerable support for their interpretation in the legislative history of the Foreign Corrupt Practices Act of 1977, 91 Stat. 1494, Title I, 15 U.S.C. §§ 78a, 78m, 78dd-1, 78dd-2, 78ff (Supp. I 1977). 61 The Foreign Corrupt Practices Act outlaws corporate bribery of foreign officials and associated inaccurate or misleading financial recordkeeping. In passing the statute Congress recognized the role of the SEC in combatting such practices under the '33 and '34 Acts, and sought to strengthen the Commission's ability to enforce compliance with the existing reguirements (sic ) of the securities laws(.) S.Rep.No. 114, 95th Cong., 1st Sess. 12 (1977). Both the Senate and the House reports on the bill acknowledged the SEC's dual investigative role in preparing cases for civil and criminal enforcement actions. They also recognize the necessity of close cooperation between the SEC and Justice in preparing such cases. The Senate Committee said: 62 The committee expects that close cooperation will develop between the SEC and the Justice Department at the earliest stage of any investigation in order to insure that the evidence needed for a criminal prosecution does not become stale.   63 Id. at 12. It stated that it expected the SEC and Justice to work out between themselves certain arrangements    on criminal matters that would preserve the authority of each within its jurisdiction. Id. The House Committee said: 64 Traditionally, there has been a close working relationship between the Justice Department and the SEC. The Committee fully expects that this cooperation between the two agencies will continue with respect to the enforcement of the provisions of this bill. 65 H.R.Rep.No. 640, 95th Cong., 1st Sess. 10 (1977). 66 Although the legislative history of the Foreign Corrupt Practices Act is not directly probative of congressional intent governing the '33 and '34 Acts, these statements by the 95th Congress are nevertheless entitled to some weight. The remarks in the committee reports concerning the investigative practices of the SEC and Justice were not intended to change, but to reaffirm, past practice. This indicates that Congress understands and approves of the close working relationship between the agencies in their investigative capacities. Since such a close working relationship will govern the activities of the agencies in enforcing the laws against questionable foreign payments under the new statute, it would be impractical for us to attempt to screen the agencies from each other when they are investigating the same sort of offense under the former statutes. 67 Congress manifestly did not intend that the SEC be forbidden to share information with Justice at this stage of the investigation. Under the panel majority's theory of the case the SEC would be foreclosed from sharing the fruits of its investigation with Justice as soon as Justice begins its own investigation through a grand jury. Only by waiting until the close of the SEC proceeding before initiating its own grand jury investigation could Justice obtain access to the evidence procured by the SEC. In view of Congress' concern that the agencies share information at the earliest stage of any investigation in order to insure that the evidence needed for a criminal prosecution does not become stale, S.Rep.No. 114, supra, at 12, and that the agencies avoid a costly duplication of effort, H.R.Rep.No. 640, supra, at 9, it would be unreasonable to prevent a sharing of information at this point in the investigation. 68 Third, we note that there is little or no judicial precedent for the panel's modification. The only support adduced by the panel opinion is a District Court opinion in SEC v. Gilbert, 79 F.R.D. 683 (S.D.N.Y.1978). In that case, which arose on the defendant's request for a protective order under the discovery rules of the Federal Rules of Civil Procedure as contrasted to an investigative subpoena enforcement proceeding as in this case the court ordered the SEC not to furnish the U.S. Attorney specially with any information procured in the course of discovery in this case. Id. at 687. The court offered no authority for this order nor, indeed, any reason for its application. While we recognize the similarity of Gilbert to this case in many respects, its lack of reasoning and its distinguishable procedural posture make it but weak authority. 49 69 In fact, the reasoning of the Supreme Court in LaSalle is contrary to that of the panel in two respects, and should govern this case in lieu of Gilbert. The LaSalle Court considered, and explicitly rejected, the course adopted by the panel majority: (I)t is unrealistic to attempt to build a partial information barrier between the two branches of the executive. United States v. LaSalle Nat'l Bank, supra, 437 U.S. at 312, 98 S.Ct. at 2365. More fundamentally, the LaSalle Court conceived of the controversy before it as an analysis of the good or bad faith of the IRS investigation. A bad faith investigation, in the Court's conception, is one conducted solely for criminal enforcement purposes. See id. at 307-308, 316, & 316 n.18, 98 S.Ct. at 2362-2363, 2367 & 2367 n.18. Where the agency has a legitimate noncriminal purpose for the investigation, it acts in good faith under the LaSalle conception even if it might use the information gained in the investigation for criminal enforcement purposes as well. 50 In the present case the SEC plainly has a legitimate noncriminal purpose for its investigation of Dresser. It follows that the investigation is in good faith, in the absence of complicating factors. There is, therefore, no reason to impose a protective order such as that imposed by the panel majority. 70 Finally, we note that the panel's modification would serve no compelling purpose, and might interfere with enforcement of the securities laws by the SEC and Justice. As the Second Circuit has said, the procedure permitting the SEC to communicate with Justice during the preliminary stages of an investigation has significant advantages. United States v. Fields, supra, 592 F.2d at 646. 71 Allowing early participation in the case by the United States Attorney minimizes statute of limitations problems. The more time a United States Attorney has, the easier it is for him to become familiar with the complex facts of a securities fraud case, to prepare the case, and to present it to a grand jury before expiration of the applicable statute of limitations. Earlier initiation of criminal proceedings moreover is consistent with a defendant's right to a speedy trial.    72 Id. The panel's modification would interfere with this commendable example of inter-agency cooperation, id., to the detriment of securities law enforcement and in contravention of the will of Congress. 51 On the other side of the balance, the panel's concern for preserving the limitations on criminal discovery is largely irrelevant at this stage of the proceedings, as Dresser agrees. 52 Thus this would be an inappropriate situation to impose a prophylactic rule against cooperation between the agencies. We believe the courts can prevent any injustice that may arise in the particular circumstances of parallel investigations in the future. We decline to adopt the position of the panel majority.