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SEC v. BLINDER

November 24, 1987

Securities And Exchange Commission, Applicant,
v.
Blinder, Robinson & Company, Inc., Respondent


Harold H. Greene, United States District Judge.


The opinion of the court was delivered by: GREENE

HAROLD H. GREENE, United States District Judge.

 The Securities and Exchange Commission (SEC or Commission) comes before the Court seeking enforcement of an administrative subpoena duces tecum against Blinder, Robinson & Co., a nationwide broker-dealer firm. Blinder, Robinson has partially complied with the SEC subpoena, but now refuses to release certain documents unless the Commission first pays it one-half the cost of duplicating the materials requested.

 I

 As a threshold matter, Blinder, Robinson argues that the enforcement statutes of the Securities Exchange Act of 1934 (Act) violate the constitutional principle of separation of powers. This is so, it is said, because the SEC is an independent agency whose Commissioners can be removed only for cause by the President, it cannot exercise the core executive function of enforcing the laws of the United States. Therefore, according to Blinder, Robinson, the Commission cannot constitutionally petition the court directly for enforcement of its subpoena, but must request authorization from either the Department of Justice or some other representative of the executive branch. There is no merit to this argument.

 There is no question that it is within the ambit of constitutionally delegated executive power to "take care that the Laws be faithfully executed." U.S. Const. Art. II, § 3. It is equally true, of course, that the executive branch may, as a vehicle for enforcing the law, engage in investigatory activities. But the Supreme Court has repeatedly recognized that the powers assigned to the three branches are not "hermetically" sealed from each other. INS v. Chadha, 462 U.S. 919, 951, 77 L. Ed. 2d 317, 103 S. Ct. 2764 (1982). There are many instances where the three branches are vested with concurrent powers, and the power to conduct investigations is one such instance. Just as the executive branch may investigate statutory violations, so may the judiciary conduct hearings into criminal or disciplinary misconduct and the Congress convene oversight hearings to investigate compliance with its laws. To the extent that Congress delegates to independent agencies the power to engage in activities within the ambit of the investigatory power, then, there is no encroachment on the constitutional bailiwick of another branch.

 Blinder, Robinson would have the Court rule that only the executive branch may petition a federal court for enforcement of laws on behalf of the United States. But that is not the issue here which involves only the question whether the SEC had the authority to issue a particular administrative subpoena. The underlying goal of the subpoena is to collect sufficient information to proceed with a fraud investigation, not to initiate enforcement proceedings. If the investigation establishes that a violation has occurred, enforcement may well follow. But the immediate action requested does not relate to that future, speculative event, and there is no need to resolve the question whether Congress could properly delegate the power to request subpoena enforcement under those circumstances.

 The answer to the narrow question whether Congress may properly delegate power to petition the courts directly for enforcement of a subpoena issued in the context of an investigation is clearly in the affirmative. The congressional grant of investigatory power to the SEC, and the concomitant power to request enforcement of its subpoenas, are well within the scope of a proper delegation of constitutional authority. In vesting this authority with the Commission, Congress has determined that the power to seek judicial enforcement of its orders is crucial to the effective administration of agency responsibilities. See FTC v. Dean Foods Co., 384 U.S. 597, 86 S. Ct. 1738, 16 L. Ed. 2d 802 (1966). Pursuant to that delegation the SEC is free to petition the Court for enforcement of its administrative subpoenas, following procedures carefully mapped out by statute.

 The cases cited by Blinder, Robinson in which a violation of the separation of powers doctrine was found are inapposite to the instant question. In reaching its conclusion in cases such as Buckley v. Valeo, 424 U.S. 1, 46 L. Ed. 2d 659, 96 S. Ct. 612 (1976), Chadha, and Bowsher v. Synar, 478 U.S. 714, 106 S. Ct. 3181, 92 L. Ed. 2d 583 (1986), the Supreme Court did not cast doubt on the legality of the independent agencies as such, or on their ability to engage in activities traditionally within their domain.

 This is not a situation, as in Chadha, where legislative control is asserted over an executive prerogative. Nothing in Chadha indicates that Congress could not, pursuant to its powers to control the trading of stocks and bonds in interstate commerce, delegate the power to suspend violators to an independent agency whose members were removable by the President for cause. Allowing an independent agency to investigate potential violations of a statute is hardly the equivalent of taking constitutional power away from the tripartite system and creating, as defendants would characterize it, a "headless 'fourth branch' of government." It is merely a delegation of investigative powers, which the independent regulatory agencies have had and have exercised for almost a hundred years, and which do not impact on the core executive function of law enforcement. It is not surprising therefore that, as Blinder, Robinson recognizes, both appellate courts and district courts have in recent years rejected challenges similar to that mounted here. See ICC v. Chatsworth Cooperative Marketing Assn., 347 F.2d 821 (7th Cir. 1965); FTC v. American Nat'l Cellular, Inc., 810 F.2d 1511 (9th Cir. 1987); SEC v. Blinder, Robinson, C.A. No. 80-M-1125 (D. Col. July 29, 1986); SEC v. Thomas, No. 86-C-0313G (D. Utah Oct. 14, 1986); SEC v. Engage-A-Car Service, Inc., No. 86-3758 (D.N.J. Dec. 18, 1986); see also SEC v. Jerry T. O'Brien, Inc., 467 U.S. 735, 81 L. Ed. 2d 615, 104 S. Ct. 2720 (1984); and Humphrey's Executor v. United States, 295 U.S. 602, 79 L. Ed. 1611, 55 S. Ct. 869 (1935). Blinder, Robinson's reliance on law review articles, concurring opinions, and currently fashionable speculation is not adequate to overcome long-standing administrative practice sustained again and again by the courts.

 II

 Blinder, Robinson also objects to the SEC's request for documents, arguing that the SEC Formal Order of Investigation pursuant to which the subpoena was issued is in excess of statutory authorization, constitutes an unlawful delegation of investigatory power by the SEC to its enforcement staff, and is a general administrative warrant in violation of the fourth amendment. These objections arise from a characterization of the Formal Order as unduly vague and broad.

 There is a fatal flaw to this argument, however. The resolution of this matter does not require the Court to determine the validity, vagueness, or overbreadth of the Formal Order, as it is not that document which defines the scope of the SEC's request. The heart of the question involves a review of the subpoena itself. Under challenge is the SEC's actual request for production of documents as outlined by the terms of its subpoena, not a hypothetical request which could possibly be made under the broader, less tailored terms of the Order. For that reason, the inquiry in this matter must be limited to the breadth and specificity of the subpoena itself.

 The SEC is statutorily authorized to "make such investigations as it deems necessary to determine whether any person has violated, is violating, or is about to violate" the provisions of the federal securities laws or "the rules or regulations thereunder . . ." Securities Exchange Act of 1934, § 21(a), 15 U.S.C. § 78u(a) (1976). For that purpose, "any member of the Commission or any officer designated by it is empowered to . . . require the production of any books, papers, correspondence, memoranda, or other records which the Commission deems relevant or material to the inquiry." Id., § 21(b), 15 U.S.C. § 78u(b). In the event of disobedience, the Commission may petition the ...


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