February 27, 2006

SEC’s Cox: press subpoenas flap to be examined

By Karey Wutkowski and Kevin Drawbaugh

WASHINGTON (Reuters) - The U.S. Securities and Exchange
Commission will examine why they were not told by investigators
in a regional SEC office about plans to subpoena two
journalists, SEC Chairman Christopher Cox said on Monday.

The San Francisco office took the unusual step this month
of issuing subpoenas to two Dow Jones & Co. columnists, asking
for telephone records, e-mails and other documents related to
online retailer Overstock.com Inc..

As part of a stock manipulation investigation, the
subpoenas went out to Carol Remond and Herb Greenberg, who
wrote about them on Friday.

Cox told Reuters in an interview that SEC investigators
routinely issue subpoenas without review from top brass in
Washington. But, he said, press involvement demands special
considerations that were somehow disregarded in the Overstock

"What distinguishes this case is its exceptionally rare
nature ... We're going to take it up at a closed meeting of the
commission as early as this week," possibly Thursday, he said.

Cox issued a statement on Monday that was viewed by former
SEC officials as a rebuke to commission staff over the matter.

He said in the interview that he, his four fellow
commissioners, the SEC's general counsel and its public affairs
office had not been notified about the subpoenas.

Cox declined to say if the subpoenas would be enforced.
Greenberg, who writes for Dow Jones unit Marketwatch.com,
reported late on Friday that the SEC had decided not to seek
production of any documents from him "at this time."


Cox said: "The only thing I can state unqualifiedly at this
point is nothing will happen unless and until the facts are
laid out, the evidence is adduced and the issues are weighed."

He said he does not consider the episode grounds for
dismissal or severe disciplinary action against SEC staff.

"It's just as important that there be a clear message that
the chairman and the commissioners stand behind the
professional staff of the SEC and in support of an aggressive
program of law enforcement," he said.

The SEC is investigating accusations by Salt Lake City,
Utah-based Overstock.com that stock-research firm Gradient
Analytics Inc., of Scottsdale, Arizona, negatively adjusted
research on Overstock after a hedge fund betting against the
company's stock requested a change.

Overstock filed a lawsuit in August claiming Gradient and
Rocker Partners, a hedge fund run by well-known short-seller
David Rocker, were scheming to drive down its stock price.

The dispute marks the latest flashpoint in a long-running
war between short-sellers -- who try to profit from a declining
share price by selling borrowed shares and then buying them
back more cheaply -- and the companies targeted by shorts.

Overstock's Web site refers to CEO Patrick Byrne being in
the news "because of a fight he is waging with Wall Street."

Byrne "believes that Wall Street is cheating Main Street by
destroying small companies for a profit, that the SEC is
failing to protect small investors and small companies because
they have gotten too close to Wall Street and that the New York
financial press is similarly co-opted," the Web site says.

Shares of Overstock closed down 33 cents, or 1.4 percent,
at $23.07 amid mildly higher trading on the Nasdaq market.

Former SEC officials said subpoenas to journalists are
usually not a productive means of furthering an investigation.

"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.

Jonathan Johnson, senior vice president of legal for
Overstock, said he's glad the SEC's investigation buttresses
the company's own lawsuit and hopes the agency doesn't back
down. "I hope the commission does the right thing and continues
to pursue the subpoenas," he said.

(Additional reporting by John Poirier and Kevin Drawbaugh)