February 27, 2006

SEC’s Cox calls press subpoenas “highly unusual”

By Karey Wutkowski

WASHINGTON (Reuters) - The head of the U.S. Securities and
Exchange Commission said on Monday that top officials at the
agency were not informed before a regional office took the
"highly unusual" step of issuing subpoenas to two journalists
in a stock manipulation investigation.

In a rebuke to SEC staff in the San Francisco office, SEC
Chairman Christopher Cox said "sensitive issues" raised by the
subpoenas "should, and will be, considered and decided by the
commission before this matter proceeds further."

Former SEC officials said Cox's statement was a rare public
scolding to staff for not following general agency practices of
avoiding press subpoenas because of the negative attention they
draw and for not checking with superiors on sensitive press

The SEC issued subpoenas earlier this month to columnists
from two Dow Jones & Co. publications, asking for telephone
records, e-mails and other documents related to online retailer
Overstock.com Inc., according to sources familiar with the

"Until the appearance of media reports this weekend,
neither the chairman of the SEC, the general counsel, the
Office of Public Affairs, nor any commissioner was apprised of
or consulted in connection with a decision to take such an
extraordinary step," Cox said in a statement.

The SEC's investigation involves accusations by
Overstock.com that stock-research firm Gradient Analytics Inc.
negatively adjusted research after a hedge fund betting against
the stock requested a change.

The subpoenas were issued out of the SEC's San Francisco
office, and were an attempt to figure out any role the
journalists might have had in disseminating any manipulative
information regarding Overstock.

But former SEC officials say subpoenas to journalists are
usually not a productive means of furthering an investigation.

"The commission and senior staff recognize that the
financial press plays a critical role, and they're not only
going to fight (a subpoena), but it would be a rare
circumstance in which it would be critical to get information
from reporters on their sources," said Greg Bruch, a former SEC
official and now a partner at the law firm of Foley & Lardner.

Bruch said Cox's statement is a clear rebuke to SEC staff.

Donald Langevoort, a professor at Georgetown University Law
Center, said a sensitive issue such as journalist subpoenas
should be run by top agency officials.

"There should be an understanding that certainly anything
of public controversy which gets into the press ought to be
discussed with the commissioners," Langevoort said.

"A heads-up is appropriate, but it doesn't mean these are
not inappropriate subpoenas."

Bruch said he does not believe there will be an official
policy change requiring agency investigators to brief the
commissioners before seeking a subpoena.

But he said the SEC was unlikely to seek more information
through the subpoenas recently issued after the attention they

(Additional reporting by John Poirier and Kevin Drawbaugh)