SEC Cracks Down on Serving Media With Subpoenas

The Securities and Exchange Commission will issue subpoenas to reporters only after exhausting all other options for obtaining information and only with the consent of top agency officials, Chairman Christopher Cox said Wednesday.

Cox, who rebuked his agency’s enforcement staff in February for issuing subpoenas to journalists without consulting him or other SEC commissioners, released guidelines specifying when and how the agency may take that unusual step in the future. The five-member commission approved the policy unanimously, he said.

“We are aiming at avoiding the issuance of subpoenas to members of the media that would impair, in any way, the news-gathering and reporting functions,” Cox said in Washington.

Cox has said he still fully supports his enforcement staff. The SEC enforcement division’s director, Linda Thomsen, joined him at the news conference.

The new policy takes effect immediately and carries the threat of disciplinary action, from reprimand letters to termination, Cox and Thomsen said.

Cox said attempts to subpoena journalists in investigations had been, and would remain, “exceptionally rare.”

The guidelines are based partly on procedures in place at the Justice Department. Federal prosecutors must exhaust all alternative means of obtaining information before moving to subpoena a journalist, and they must notify the attorney general and the head of the public affairs office.

The SEC guidelines “show evidence of a real effort not only to understand press practices, but press principles, and that’s a good sign,” said Paul McMasters, ombudsman of the First Amendment Center, a unit of the Freedom Forum.

McMasters praised the SEC for including the threat of disciplinary action for violating the procedures. More than two dozen reporters faced possible subpoenas in various cases across the government, he said.

“We have not seen this sort of targeting of journalists and their sources for more than 30 years, since the Watergate era,” McMasters said.

Cox praised the role of reporters, who, he said, share a “common purpose” with SEC regulators.

Cox criticized his staff after it subpoenaed two Dow Jones & Co. reporters in connection with an investigation.

On March 2, Cox ordered the commission to begin work on the guidelines for future investigations that might involve journalists.

The case increased scrutiny of the SEC’s enforcement unit, which has been criticized for overreaching by trade groups, including the U.S. Chamber of Commerce.

Also Wednesday, an SEC advisory panel defended its call to exempt smaller companies from an annual audit rule in the Sarbanes-Oxley law, a change opposed by Cox and three other commissioners.

“Our basic recommendations are well-grounded, and we should stick by them,” said Herbert Wander, a Chicago securities attorney and co-chair of the 21-member committee.

The advisory committee was created to assess the Sarbanes-Oxley law’s effect on companies. The law was enacted in 2002 to strengthen accounting rules after the collapse of Enron Corp. The panel voted in December to exempt companies with a stock-market value below $787 million from a requirement that they hire an auditor to certify internal accounting controls.

The proposed exemption, which would affect 80% of all publicly traded firms, is part of a final report the committee said it planned to release this month. The measure is opposed by four former SEC chairmen, including Cox’s immediate predecessor, William H. Donaldson, who appointed the committee.