SEC Issues Guidelines on Subpoenaing Reporters
By Christopher Faille, Financial Correspondent
April 12, 2006

Washington … The Securities and Exchange Commission announced Wednesday new guidelines for its professional staff that aim to avoid the issuance of subpoenas to reporters that might impair their abilities to gather and report the news.

For the moment, at least, the guidelines seem to have accomplished the difficult feat of satisfying both sides of what was becoming, and may again become, a heated debate.

The guidelines require that if the staff, in investigating a matter, determines that a reporter (or a "member of the news media") may have personal information, it will first seek to determine whether the information can be obtained through other means. Only if it can't, or reasonable efforts to do so have been exhausted, and only if the information is "essential to successful completion of the investigation," will the staff carry the matter further. 

After determining that they need the information, and that it isn't available elsewhere, staff members shall take the matter to the regional director, district administrator, or associate director for approval, and then should contact legal counsel for the reporter, or the reporter directly if he or she isn't represented by a legal counsel.

Once contact is made, negotiations shall take place informally, avoiding the issuance of a subpoena, if the regional director or other responsible official "determines that such negotiations would not substantially impair the integrity of the investigation."

Lucy Dalglish, executive director for Reporters Committee for Freedom of the Press, expressed happiness with the new guidelines Wednesday evening. "This is exactly what we asked the chairman [Christopher Cox] to do about a month ago." She added that these are very similar to guidelines used by the Justice Department in its investigations.

The need for such guidelines arose in the SEC context when news reports appeared in late February that the SEC had served subpoenas for records on columnists in an investigation of allegations that short-selling hedge funds have cooperated with research firms, purportedly independent analysts, and journalists in an effort to drive down the price of targeted stocks.

Mr. Cox then announced that the agency wouldn't pursue these subpoenas—which went to Herb Greenberg of MarketWatch, Carol Remond of Dow Jones, and James Cramer of and "Mad Money" on television—until further review.

Mr. Cox seemed for a time to have the worst of both worlds. He had been criticized for undercutting the enforcement efforts of his non-partisan staff on the one hand, and for allowing actions that may well have a chilling effect on the financial press on the other.

For now, though, the reaction to these guidelines is generally positive. Russell K. Godwin, president of RGM Communications Inc., who has long been active in pressing for enforcement actions against illegal stock manipulation practices, said Wednesday he believes that the SEC is working to be fair.

"I don't think that [Wednesday's policy statement] inhibits the SEC. It still allows them an ability to see if there are miscreants in the media."

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