Opinion ID: 381789
Heading Depth: 2
Heading Rank: 2

Heading: The Dresser Investigations

Text: 5 On January 27, 1976 an attorney and other representatives of Dresser met with members of the SEC staff to discuss a proposed filing. At the meeting Dresser agreed to conduct an internal inquiry into questionable foreign payments, in accordance with the terms of the Voluntary Disclosure Program. 10 The next day Dresser submitted a Form 8-K describing, in generic terms, one questionable foreign payment. Joint Appendix (JA) 100-102. On November 11, 1976 Dresser filed a second Form 8-K reporting the results of the internal investigation. JA 103-108. On February 10, 1977 the company supplemented this report with a third Form 8-K concerning a questionable payment not reported in the earlier reports. JA 109-113. The reports concerned Dresser's foreign activities after November 1, 1973. All disclosures were in generic, not specific, terms. 6 As part of its general monitoring program the SEC staff requested access to the documents underlying Dresser's report. On July 15, 1977 Dresser refused to grant such access. The company argued that allowing the staff to make notes or copies might subject its documents to public disclosure through the Freedom of Information Act. 11 Dresser stated that such disclosure could endanger certain of its employees working abroad. 12 During the ensuing discussions with the staff Dresser attempted to impose conditions of confidentiality upon any SEC examination of its documents, but the staff did not agree. 13 Instead, it issued a recommendation to the Commission for a formal order of investigation in the Dresser case. This recommendation was predicated on the staff's conclusions that Dresser: 7
8 2. may have made false and misleading statements concerning the existence of and circumstances surrounding material obligations of Dresser to certain foreign governments and to other entities; and 9 3. may have made false entries and caused false entries to be made upon the books and records of Dresser, and its affiliates and subsidiaries with respect to, among other things, payments to foreign government officials. 10 JA 7-8 (order directing private investigation and designating officers to take testimony). Moreover, the staff reported that Dresser's proxy soliciting materials, reports, and statements may have been misleading with respect to the potential risks involved in its conduct of business through questionable foreign payments, and may have included false statements in connection with such payments. JA 8. Dresser vigorously opposed issuance of an order of investigation. 14 11 Meanwhile, the Department of Justice had established a task force on transnational payments to investigate possible criminal violations arising from illegal foreign payments. Two SEC attorneys participated in the task force. In the summer of 1977 the Justice task force requested access to SEC files on the approximately 400 companies, including Dresser, that had participated in the Voluntary Disclosure Program. 15 Pursuant to Commission authorization the SEC staff transmitted all such files to the Justice task force in August 1977. 16 After its preliminary investigation of the Form 8-K's submitted by Dresser under the Voluntary Disclosure Program, Justice presented Dresser's case to a grand jury in the District of Columbia on January 25, 1978. 12 Before any summons or subpoena had issued in either the SEC or the grand jury investigation, Dresser filed suit in the Southern District of Texas against the SEC and Justice to enjoin any further investigation of it by either agency. 17 While Dresser's suit was pending in the Southern District of Texas, the District of Columbia grand jury subpoenaed Dresser's documents on April 21, 1978. At roughly the same time the SEC issued a formal order of private investigation, authorizing the staff to subpoena the documents and to obtain other relevant evidence. JA 7-9 (April 11, 1978). Pursuant to that order the staff issued a subpoena duces tecum, returnable on May 4, 1978. JA 14-16 (April 21, 1978). This subpoena covered substantially the same documents and materials subpoenaed by the grand jury, and more. Dresser did not respond to the subpoena. 18 13 On May 1, 1978 the District Court in Houston, Texas dismissed Dresser's suit against Justice without opinion. Three days later, after the period for compliance with its subpoena had lapsed, the SEC applied to the District Court for the District of Columbia for enforcement. In the meantime, Dresser had appealed the adverse judgment in the Texas action to the Fifth Circuit, and sought interim relief. On May 5 Judge Coleman of the Fifth Circuit enjoined further prosecution of the SEC subpoena enforcement action until after the District Court for the Southern District of Texas had ruled on Dresser's action against the SEC. Judge Coleman also obtained a stipulation from Justice that Justice would not require Dresser or its agents to appear before the grand jury until after the Company had filed a motion to quash the grand jury subpoena in the District of Columbia and had received a ruling on such motion. 14 On May 8, 1978 Dresser filed a motion to quash the grand jury subpoena in the District Court for the District of Columbia. On May 19 the District Court (Parker, J.) denied Dresser's motion to quash, but imposed a protective order requiring strict confidentiality in accordance with Rule 6(e) of the Federal Rules of Criminal Procedure. In imposing the protective order the court stated that the concern of Dresser and especially its employees is not illusory and should not be lightly considered. See JA 163. This was in reference to Dresser's argument that public disclosures of the names, places, and dates connected with its questionable foreign payments could endanger the lives of its employees in certain turbulent foreign countries. Dresser thereafter complied with this grand jury subpoena. 15 On May 26, 1978 the Southern District of Texas dismissed Dresser's action against the SEC without reaching the merits. Dresser appealed to the Fifth Circuit and on June 8 obtained an order from the court that: 16 Until the appeal in this case shall have been decided in this court, and except for proceedings before the Grand Jury in the District of Columbia, the Securities and Exchange Commission, its officers and employees, are enjoined to preserve inviolate the confidentiality of any information obtained by the subpoena here in issue. This order is not intended to interfere with pending proceedings in the District of Columbia to enforce the SEC subpoenas. 17 JA 202. On June 2, 1978 the District Court for the District of Columbia issued an order to Dresser to show cause why it should not be required to appear, give testimony, and produce records in obedience to the SEC subpoena. JA 141. On June 7 Dresser filed a motion for leave to obtain discovery from the SEC concerning the agency's alleged bad faith and attempted abuse of the judicial process, JA 27, and on June 13 filed a motion to quash the SEC subpoena. JA 160. 18 The District Court (Flannery, J.) denied Dresser's motion to compel discovery on June 16, without opinion. Judge Flannery explained in court that he had carefully examined the papers filed by Dresser, that discovery is rarely necessary in subpoena enforcement cases, and that he did not think this was an appropriate case for it. JA 256. Then, on June 30, 1978, the District Court (Flannery, J.) issued a memorandum opinion and order rejecting all of Dresser's objections to the SEC subpoena and requiring Dresser to comply with the subpoena within ten days after notice from the SEC. JA 301, reported at 453 F.Supp. 573 (D.D.C.1978). Rehearing was denied on July 15. This appeal followed. 19 Meanwhile, the United States Court of Appeals for the Fifth Circuit affirmed the decisions of the District Court for the Southern District of Texas dismissing Dresser's actions against Justice and the SEC in that court, largely on ripeness grounds. Dresser Industries, Inc. v. United States, 596 F.2d 1231 (5th Cir. 1979), cert. denied, 444 U.S. 1044, 100 S.Ct. 731, 62 L.Ed.2d 730 (1980). Accordingly, the interlocutory injunction requiring the SEC to preserve inviolate the confidentiality of Dresser's materials pending a decision on appeal was dissolved. 20 Having set forth the complicated procedural history of this case, we turn now to the principles that govern parallel administrative and criminal proceedings concerning the same conduct.