Sec v. Jerry T. O’brien, Inc., 467 U.S. 735 (1984)

Securities and Exchange Commission v. Jerry T. O’Brien, Inc.

No. 83-751

Argued April 17, 1984
Decided June 18, 1984
467 U.S. 735

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Syllabus

During its nonpublic investigation into possible violations of the federal securities laws involving respondents, the Securities and Exchange Commission (SEC) issued subpoenas to certain of the respondents for the production of financial records. Ultimately, respondents filed suit in Federal District Court to enjoin the SEC’s investigation and to prevent compliance with some of the subpoenas. After the District Court dismissed the claims for injunctive relief, the SEC issued subpoenas to third parties. Respondents then renewed their requests to the District Court for injunctive relief and sought notice of the third-party subpoenas. The court denied the requested relief, but the Court of Appeals reversed with respect to the District Court’s denial of respondents’ request for notice of subpoenas issued to third parties.

Held: The SEC is not required to notify the "targets" of nonpublic investigations into possible violations of the securities laws when the SEC issues subpoenas to third parties. The SEC has discretion to determine when such notice would be appropriate and when it would not. Pp. 741-751.

(a) Notice to "targets" is not required by any constitutional provision. When a federal administrative agency, without notifying a person under investigation, uses its subpoena power to gather evidence adverse to him, the Due Process Clause of the Fifth Amendment is not implicated, because an administrative investigation adjudicates no legal rights, and the Confrontation Clause of the Sixth Amendment is not offended, since it does not come into play until the initiation of criminal proceedings. Nor may a person inculpated by materials sought by a subpoena issued to a third party seek shelter in the Self-Incrimination Clause of the Fifth Amendment, since the subpoena does not "compel" anyone other than the person to whom it is directed to be a witness against himself. Finally, respondents cannot contend that notice of subpoenas issued to third parties is necessary to enable a "target" to prevent a search or seizure of his papers violative of the Fourth Amendment; when a person communicates information to a third party, even on the understanding that the communication is confidential, he cannot object if the third party conveys that information or records thereof to law enforcement authorities. Pp. 742-743.

(b) The language and structure of the statutes administered by the SEC, particularly the Securities Act of 1933 and the Securities Exchange Act of 1934, do not support the imposition of a duty on the SEC to notify a "target" of an investigation when it issues a subpoena to a third party. The provisions vesting the SEC with the power to conduct investigations and to issue and seek enforcement of subpoenas are expansive, and no provision expressly obliges the SEC to notify "targets" when subpoenas are issued to third parties. Congress intended to vest the SEC with considerable discretion in determining when and how to investigate possible statutory violations, and there is no evidence that Congress expected the Commission to adopt any particular procedure for notifying "targets" when it sought information from third parties. The fact that Congress recently has imposed a carefully limited obligation on the SEC under the Right to Financial Privacy Act to notify bank customers of administrative subpoenas issued to banks reinforces the conclusion that Congress assumed that the SEC was not and would not be subject to a general obligation to notify "targets" whenever it issued administrative subpoenas. Pp. 743-747.

(c) Nor is a notice requirement justified on the ground, asserted by respondents, that a "target" has a substantive right to insist that administrative subpoenas issued to third parties meet the standards set forth in United States v. Powell, 379 U.S. 48, and that, to enable the "target" to enforce this right by intervening in SEC enforcement actions against the subpoena recipients or by restraining the recipients’ voluntary compliance, the "target" must be notified of the subpoenas. Even assuming, arguendo, that a "target" has such substantive and procedural rights, pragmatic considerations counsel against reinforcing those rights with a notice requirement. Administration of a notice requirement would be highly burdensome for both the SEC and the courts, particularly with regard to identification of the persons and organizations that should be considered "targets" of investigations. Moreover, the imposition of a notice requirement would substantially increase the ability of "targets" who have something to hide to impede legitimate SEC investigations by discouraging subpoena recipients from complying, or by destroying or altering documents, intimidating witnesses, or transferring securities or funds so that they could not be reached by the Government. Pp. 747-751.

704 F.2d 1065, reversed and remanded. MARSHALL, J., delivered the opinion for a unanimous Court.