SEC to Set Policy on Media Subpoenas

Scrambling to defuse a 1st Amendment issue, the Securities and Exchange Commission instructed its staff Thursday to prepare guidelines for demanding information from journalists whose work may be of interest to investigators.

The commission move came less than a week after disclosures that the SEC had issued a subpoena to two writers for Dow Jones & Co. online publications -- a move by agency enforcers that caught Chairman Christopher Cox off guard.

The SEC had also demanded materials from TheStreet.com and Jim Cramer, its largest shareholder and a CNBC financial commentator.

In a briefing for reporters Thursday, Cox outlined some of his priorities in establishing a formal SEC policy and his concerns over the process by which the subpoenas were issued.

“What will inform our policy are the best practices of the commission over a period of many years, and also -- where relevant -- the policies of other law enforcement agencies,” such as the Justice Department, he said.

Cox said he did not foresee a “blanket rule” that the commission always would be required to approve subpoenas for journalists sought by the enforcement division. But he urged explicit guidance in such matters, including alerting public affairs officials.

He said he would prefer that the SEC exhaust other avenues before turning to the news media, which has a 1st Amendment right to gather information without government interference. He said he supported the “least intrusive” means of dealing with the press in SEC investigations and also wanted to ensure that any information demanded of reporters would be “of objective importance” in an investigation.

Though he did not criticize enforcement chief Linda Chatman Thomsen by name, Cox made clear his displeasure with the fact that commission higher-ups were not informed when she approved the subpoenas in February. The SEC demands for phone and e-mail records were disclosed last Friday by Herb Greenberg, a San Diego columnist for Dow Jones’ MarketWatch website.

Greenberg wrote that he had been subpoenaed by the SEC in connection with an investigation into research firm Gradient Analytics Inc. Online retailer Overstock.com Inc. of Salt Lake City has accused Gradient and a hedge fund of conspiring to push down its stock price.

Dow Jones Newswires columnist Carol S. Remond was also subpoenaed as part of the probe, but a spokeswoman for Dow Jones said agency officials had backed away from the demand last Friday in the face of the company’s objections.

“What didn’t work in this case was that [the office of ] public affairs wasn’t apprised,” Cox said. “The chairman and the commissioners were not apprised. In a matter in which the legitimacy of the commission’s actions was immediately called into question, we weren’t well equipped to respond with accurate information.”

At the same time, Cox reiterated his “unstinting strong support for an aggressive program of securities law enforcement.”