SECURITIES AND EXCHANGE COMMISSION, ET AL., PETITIONERS V. JERRY T. O'BRIEN, INC., ET AL. No. 83-751 In the Supreme Court of the United States October Term, 1983 The Solicitor General, on behalf of the Securities and Exchange Commission and three of its employees, petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Ninth Circuit in this case. Petition For a Writ of Certiorari To the United States Court of Appeals For the Ninth Circuit PARTIES TO THE PROCEEDING Petitioners (who were defendants and cross-defendants in the district court and appellees in the court of appeals) are the Securities and Exchange Commission and Jack H. Bookey, Lane B. Emory, and George N. Prince, employees of the Commission's Seattle Regional Office. Respondents are Jerry T. O'Brien, Inc. d/b/a/ Pennaluna & Co.; Jerry T. O'Brien; Benjamin A. Harrison; and Pennaluna & Co., Inc. (all of whom were plaintiffs in the district court and appellants in the court of appeals) and Harry F. Magnuson and H.F. Magnuson & Co. (who were defendants and cross-plaintiffs in the district court and appellants in the court of appeals). TABLE OF CONTENTS Opinions below Jurisdiction Statutory provisions involved Statement Reasons for granting the petition Conclusion Addendum Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F Appendix G OPINIONS BELOW The opinion of the court of appeals (App., infra, 1a-8a) is reported at 704 F.2d 1065. The opinions of the district court (App., infra, 9a-16a, 17a-24a) are not reported. JURISDICTION The judgment of the court of appeals was entered on April 25, 1983. A timely petition for rehearing was denied on September 30, 1983 (App., infra, 25a). The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTORY PROVISIONS INVOLVED The pertinent portions of the Securities Act of 1933 (Securities Act), 15 U.S.C. 77a et seq., the Securities Exchange Act of 1934 (Securities Exchange Act), 15 U.S.C. 78a et seq., the Public Utility Holding Company Act of 1935, 15 U.S.C. 79 et seq., the Trust Indenture Act of 1939, 15 U.S.C. 77aaa et seq., the Investment Company Act of 1940, 15 U.S.C. 80a-1 et seq., and the Investment Advisers Act of 1940, 15 U.S.C. 80b-1 et seq., are set forth in App., infra, 31a-438a. QUESTION PRESENTED Whether the Securities and Exchange Commission must notify "targets" of its non-public investigations when subpoenas are issued to third parties. STATEMENT This petition seeks review of a judgment of the United States Court of Appeals for the Ninth Circuit compelling the Securities and Exchange Commission to furnish "targets" of its non-public, fact-gathering inquiries with notice of subpoenas issued to other witnesses. 1. Under its statutes, the Commission has express authority to conduct such investigations as it deems necessary and to issue subpoenas for testimony and documents. /1/ The rules governing such inquiries provide that "(u)nless otherwise ordered by the Commission, all formal investigative proceedings shall be non-public." /2/ Commission investigations, to which there are no parties, are preliminary, non-adjudicatory inquiries /3/ that are conducted to determine whether law enforcement proceedings should be commenced. After an investigation is completed, the Commission may institute an administrative adjudicatory proceeding, /4/ file an injunctive action in a federal district court, refer a matter to the Department of Justice for criminal prosecution, or take no action at all. /5/ 2. Respondents brought this suit to halt an ongoing non-public investigation. On September 3, 1980, the Commission issued a formal order of investigation In re H.F. Magnuson & Co. The order described certain transactions, listed provisions of the securities laws that these transactions may have violated, /6/ and empowered certain employees of the Commission's Seattle Regional Office to subpeona witnesses and evidence. In September 1981, Jerry T. O'Brien, Inc., a registered broker-dealer, /7/ and certain affiliated individuals, sued the Commission and certain employees of its Seattle Regional Office to prevent the scheduled testimony of Harry F. Magnuson and others and to enjoin the investigation on the ground, among others, that it had been initiated improperly. /8/ Magnuson, a customer of O'Brien, filed a cross-claim and third-party complaint against the Commission raising similar challenges. 3. In January 1982, the district court dismissed respondents' claims for injunctive relief, /9/ since respondents' challenges to the legality of the investigation could be litigated if and when the Commission brought an action to enforce its subpoenas (App., infra, 71a-24a). /10/ Respondents then moved for an injunction pending appeal and, for the first time, sought notice of subpoenas issued to third parties. The district court issued a second order (App., infra, 9a-16a) declining to "fashion such a novel remedy" (id. at 12a). 4. On April 25, 1983, the court of appeals affirmed the dismissal of all claims for injunctive relief except respondents' request for notice. The court acknowledged (App., infra, 6a) that persons and firms under investigation generally "have no right to protect or withhold documents held by a third party." The court stated, however, that "targets" /11/ Of investigations "have a right to be investigated consistently with the standards" of United States v. Powell, 379 U.S. 48 (1964) (App., infra, 6a), and are thus entitled to notice of third-party subpoenas so that they can assert this right "by seeking permissive intervention in enforcement proceedings brought by the agency against the third party or by other appropriate district court proceedings" (id. at 7a). /12/ 5. The Commission filed a petition for rehearing with a suggestion for rehearing en banc, and the United States filed a brief amicus curiae in support of the petition on behalf of more than 20 other agencies whose practices were threatened by the panel decision (U.S. Am. Br. 2 n.1). The court of appeals denied (App., infra, 25a) rehearing en banc. Writing for the five dissenters, Judge Kennedy stated (id. at 26a) that the court had "decline(d) to review a panel decision that is novel, of vast importance, and, in my view, most erroneous. Our refusal to review panel decisions of this type imposes an unnecessary burden on the Supreme Court." He also noted (id. at 26a-27a): There is no principled basis for confining the panel holding to the context of an SEC investigation. It threatens to compromise government investigations by most agencies. Not only will wrongdoers be provided a new instrument of obstruction or delay, but also employees and others subject to reprisals will be chilled from cooperating with investigators. Under the panel decision, government agencies will find it increasingly difficult to conduct confidential, nonpublic investigations in which actual targets are not discovered until a number of subpoenas have been served. Agencies may instead be forced to articulate premature conclusions about potential targets. REASONS FOR GRANTING THE PETITION The decision of the court of appeals is not supported by any constitutional provision, statute, rule or judicial decision; is inconsistent with the reasoning of decisions of this Court and numerous other courts of appeals; is contrary to a half-century of unbroken administrative practice; and threatens seriously to impede important investigations conducted by the Securities and Exchange Commission and more than 35 other agencies that have never previously been required to notify persons or firms under investigation when subpoenas are issued to third parties (see Addendum infra, 18-25). 1. The court of appeals' decision is based upon nothing but the court's own notion of sound public policy. The court did not purport to rest its novel decision on any provision of the Constitution, and it is clear that none applies. The Fourth Amendment does not impose such a notice requirement. In Donaldson v. United States, 400 U.S. 517, 522, 530 (1971), the Court made clear that an individual has no Fourth Amendment interest in the records of third parties and that one's status as a target of an investigation does not create a right to challenge third-party subpoenas. And in United States v. Miller, 425 U.S. 435, 443 (1976), the Court reaffirmed that "the Fourth Amendment does not prohibit the obtaining of information revealed to a third party and conveyed by him to Government authorities." In addition, the Court noted (id. at 443 n.5) that, because the target lacked a Fourth Amendment interest in information subpoenaed from third parties, the agency's failure to afford notice of the subpoena was "without legal consequences." See United States v. Payner, 447 U.S. 727, 732 (1980). The court below did not rely on the Fifth Amendment's Due Process Clause. /13/ Had it done so, its decision would squarely conflict with Hannah v. Larche, 363 U.S. 420 (1960). /14/ In Hannah, the Court held that, prior to the initiation of formal charges, due process does not afford persons under investigation by a governmental agency such as the SEC /15/ the right to be notified of adverse evidence or the identity of accusers. The Court expressly analogized (id. at 449 & n.30) administrative investigations to grand jury proceedings, the targets of which have never been entitled to notice of the identity of witnesses. /16/ Fifth Amendment procedural protections, the Court held (363 U.S. at 449-451), are not required in agency or grand jury investigations because such inquiries do not adjudicate any legal rights but, at most, may lead to subsequent proceedings at which all the claimed procedural protections would fully apply. Moreover, the Court noted (id. at 443-444) that requiring such "trial-like" procedures would "make a shambles of the investigation and stifle the agency in its gathering of facts." /17/ 2. The court of appeals likewise cited no statute that compels the Commission to provide notice of third-party subpoenas, and none exists. The statutes that authorize the SEC to conduct investigations, subpoena witnesses and records, and seek judicial enforcement of its subpoenas (see, e.g., 15 U.S.C. 78u(a)-(c)) contain no hint that such notice is required. /18/ Indeed, Congress has specifically considered this issue as it applies to the Commission and, except in very limited circumstances not applicable here or in the case of most investigative subpoenas, has not required that investigatees be notified of third-party subpoenas. /19/ The absence of any other notice requirement in statutes governing the Commission's subpoena powers creates the "presumption" that Congress did not intend to impose such a burden. Hannah v. Larche, 363 U.S. at 433. /20/ In exercising its express statutory authority to establish procedures governing its investigations, /21/ the Commission has not provided for notice of third-party subpoenas. /22/ These procedures, which are similar to those of most other investigating agencies, /23/ reflect the Commission's judgment concerning how best to balance its investigative needs against the legitimate interests of individuals under investigation. There is no evidence -- and the court of appeals did not find -- that the Commission's procedures have been unfair or oppressive. /24/ Nor is there any proof that the court's novel notice requirement would significantly promote any legitimate interests. Without any evidence or expertise in the field, the court simply imposed its own conception of sound administrative practice. /25/ 3. The court of appeals believed (App., infra, 7a) that notice of subpoenas issued to witnesses was required in order to "afford targets an opportunity to question whether agency actions comply with" United States v. Powell, supra. Powell, however, does not in any way suggest that such notice is necessary and does not confer an abstract "right to be investigated" in a particular manner (App., infra, 7a). /26/ Rather, Powell merely concerned the showing that the Internal Revenue Service must make in order to obtain judicial enforcement of a summons. The Court held (379 U.S. at 57-58) that the IRS must show "that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to that purpose, that the information sought is not already within (its) possession, and that the administrative steps required by the (Internal Revenue) Code have been followed." /27/ Unlike Powell, this case is not a subpoena enforcement action, and it consequently raises no questions regarding the showing that the Commission must make before judicial process issues. /28/ Instead, this case concerns the ability of a putative target to obtain an injunction against administrative subpoenas issued in conformity with all statutory requirements. Moreover, notice of the sort required by the court of appeals is generally not needed to effectuate Powell because persons under investigation may raise any alleged impropriety when the agency institutes a subpoena enforcement or other action against them. As this Court held in Donaldson, to the extent that a target has any "protectable interest, as, for example, by way of privilege, or to the extent (that) he may claim abuse of process, (he) may always assert that interest or that claim in due course at its proper place in any subsequent trial" (400 U.S. at 531, citing United States v. Blue, 384 U.S. 251 (1966)). Absent such agency action, the target has suffered no legal harm. See Hannah v. Larche, 363 U.S. at 442-443. 4. The decision of the court below conflicts with decisions of every other court of appeals that has considered whether notice of third-party agency subpoenas is required. See United States v. Schutterle, 586 F.2d 1201, 1204 (8th Cir. 1978) (taxpayer is not entitled to notice and hearing before enforcement of an IRS summons directed to third party); Scarafiotti v. Shea, 456 F.2d 1052, 1053 (10th Cir. 1972) (Donaldson does not require notice to the taxpayer of a third-party subpoena); In re Cole, 342 F.2d 5, 8 (2d Cir.), cert. denied, 381 U.S. 950 (1965) (IRS examinations of third parties need not be preceded by notice to the taxpayer under investigation) (cited with approved by this Court in Donaldson, 400 U.S. at 530). /29/ Similarly, the District Court for the Southern District of New York, relying upon Cole and this Court's decisions in Miller, Hannah, Donaldson and Powell, refused to follow the decision below and held that the Commission is under no obligation to provide persons under investigation with notice of subpoenas issued to witnesses. PepsiCo, Inc. v. SEC, 563 F. Supp. 828, 831-832 (S.D.N.Y. 1983). 5. The decision of the court below has seriously disrupted the Commission's law enforcement investigations. /30/ Indeed, as a result of that decision, the Commission has found it necessary to hold in abeyance many of its current investigations in the Ninth Circuit. Furthermore, the harmful effects of the decision below are not confined to the Commission. More than 100 federal law enforcement and other programs depend upon subpoenas that are issued without notice to targets and pursuant to statutes analogous to the SEC's. See Addendum, infra, 18-25, Hannah v. Larche, 363 U.S. at 427. Unless reversed, the decision below is almost certain to impair the operation of these programs, as well as the SEC's efforts to discharge its statutory mandate. /31/ Notice concerning the identity of witnesses will delineate the focus and progress of an investigation, thereby substantially increasing opportunities for the destruction of documents, intimidation of witnesses, tailoring of testimony, fabrication of defenses, and the transfer or dissipation of assets. See NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 239 (1978); United States v. Eisenberg, 711 F.2d 959, 961 (11th Cir. 1983). In some cases, targets may threaten witnesses with physical or economic retaliation in an effort to mold their testimony or to presuade them not to testify. Ibid.; cf. United States v. Sells Engineering, Inc., No. 81-1032 (June 30, 1983), slip op. 6. Third-party witnesses, who are often employees or business associates of those under investigation, are particularly vulnerable to such coercion. NLRB v. Robbins Tire & Rubber Co., 437 U.S. at 239; see App., infra, 26a. Furthermore, confidential informants, whose cooperation with the government may not be known to the target, will be reluctant to come forward and testify, fearing that disclosure of their participation will expose them to retribution. /32/ The threat of such obstruction underlies the longstanding provision for secrecy of grand jury proceedings, /33/ to which this Court has analogized agency investigations such as those conducted by the Commission. /34/ Notice also will enable targets to delay investigations and subsequent law enforcement proceedings. Targets will encourage witnesses not to comply with legitimate subpoenas, thereby forcing the agency to seek judicial enforcement in many instances where it would not otherwise be necessary. /35/ And, under the rationale of the court of appeals, targets may intervene in numerous subpoena enforcement proceedings largely for the purpose of delay. /36/ Even if a witness desires to comply voluntarily with a subpoena, targets armed with advance notice can be expected to file frivolous independent actions to delay compliance. /37/ As a result, the Commission and other law enforcement agencies "would be diverted from their legitimate duties and would be plagued by the injection of collateral issues that would make the investigation interminable" (Hannah v. Larche, 363 U.S. at 443). /38/ As a district court stated in declining to follow the holding of the court of appeals below, a notice requirement would permit targets effectively to monitor the course and conduct of agency investigations. Experience and common sense should establish that such a power would be greatly abused, and that the limited resources presently available in our agencies to enforce the nation's public policies would be significantly reduced because of procedural maneuvering and other even less wholesome tactics. PepsiCo, Inc. v. SEC, 563 F. Supp. at 832. The requirement that persons under inquiry receive notice of subpoenas issued to witnesses also would inject substantial uncertainty into law enforcement and jeopardize pending investigations. /39/ While requiring the provision of notice to "targets" when third-party subpoenas are served, the court of appeals made no effort to resolve such fundamental questions as the definition of a "target," the procedures for adjudicating whether a person or firm is a target, the rights of targets following receipt of notice, and the effect of noncompliance with the notice requirement. /40/ See PepsiCo, Inc. v. SEC, 563 F. Supp. at 832. Even the threshhold question -- what is a "target"? -- is far from clear. The Commission itself does not use that term, and its inquiries generally focus on transactions rather than suspects. /41/ Is a target any person or firm about whose activities evidence is gathered? Is it anyone suspected by the Commission staff? Is it anyone against whom sufficient evidence has been received to permit the initiation of administrative proceedings? Or the filing of an injunctive action? Or referral of the case for criminal prosecution? And how are the courts to proceed when a party who has not received notice but claims to be a target seeks intervention in enforcement proceedings or initiates one of the "other appropriate district court proceedings" to which the court of appeals referred (App., infra, 7a)? Must the Commission disclose the evidence it has gathered and the investigative decisions it has made so that the correctness of its failure to provide target notice can be reviewed? While these and other issues are being resolved on a case-by-case basis, numerous Commission and other law enforcement investigations may be at risk. For almost 50 years, the Securities and Exchange Commission has issued subpoenas without providing notice to the subjects of the investigation, and other investigative bodies have followed a similar practice since the beginning of the Republic. Such subpoenas have been routinely enforced by the federal courts. See Hannah v. Larche, 363 U.S. at 442-444. If permitted to stand, the court of appeals' notice requirement, which reverses this historical practice without any demonstrated need, will cause grave difficulties for law enforcement that far outweigh any resulting benefits. Ibid.; see United States v. Calandra, 414 U.S. 338, 350-352 (1974). CONCLUSION The petition for a writ of certiorari should be granted and the judgment should be reversed. Respectfully submitted. REX E. LEE Solicitor General LOUIS F. CLAIRBORNE Deputy Solicitor General SAMUEL A. ALITO, JR. Assistant to the Solicitor General DANIEL L. GOELZER General Counsel PAUL GONSON Solicitor LINDA D. FIENBERG Associate General Counsel HARRY J. WEISS Special Trial Counsel ELIZABETH A. SPURLOCK Attorney NOVEMBER 1983 /1/ See Section 19(b) of the Securities Act, 15 U.S.C. 77s(b), and Section 21(a) and (b) of the Securities Exchange Act, 15 U.S.C. 78u(a) and (b). The Commission delegates its investigatory subpoena power to its staff by entering formal orders of investigation. See generally 17 C.F.R. 202.5. Commission subpoenas are not self-executing; the subpoena recipient may refuse to comply and await a possible subpoena enforcement proceeding brought by the Commission in an appropriate federal district court. Section 22(b) of the Securities Act, 15 U.S.C. 77v(b); Section 21(c) of the Securities Exchange Act, 15 U.S.C. 78u(c). /2/ 17 C.F.R. 203.5. See 17 C.F.R. 240.0-4. Virtually all Commission investigations are non-public. See 3 L. Loss, Securities Regulation at 1955 (2d ed. 1961). The various Commission rules concerning investigations were promulgated under the Commission's statutory authority to make "such rules and regulations as may be necessary to carry out" its statutory mandates. Section 19(a) of the Securities Act, 15 U.S.C. 77s(a). See Section 23(a)(1) of the Securities Exchange Act, 15 U.S.C. 78w(a)(1). /3/ See Hannah v. Larche, 363 U.S. 420, 446-447 (1960). /4/ The Commission's rules governing its adjudicatory proceedings provide for notice, hearing, and cross-examinaiton. 17 C.F.R. 201.6, 201.9. These rules do not apply to preliminary investigations. 17 C.F.R. 201.1. /5/ See, e.g., Section 20(b) of the Securities Act, 15 U.S.C. 77t(b); Sections 15(b) and 21(d) of the Securities Exchange Act, 15 U.S.C. 78o(b) and 78u(d). /6/ The Commission directed the staff to determine whether the events described in order constituted the filing of false and misleading reports with the Commission, the failure to file required statements with the Commission, or the selling of stock in violation of antifraud provisions of the securities laws. The formal order stated that the following provisions of the federal securities laws may have been violated: Sections 5(a), (c) and 17(a) of the Securities Act, 15 U.S.C. 77e(a), (c) and 77q(a); Sections 10(b), 13(a), (d), (g), 14(a) and 16(a) of the Securities Exchange Act, 15 U.S.C. 78j(b), 78m(a), (d), (g), 78n(a) and 78p(a); and Commission Rules 10b-5, 13a-1, 13d-1, 13d-2, 14a-3, 14a-9 and 16a-1, 17 C.F.R. 240.10b-5, 240.13a-1, 240.13d-1, 240.13d-2, 240.14a-3, 240.14a-9 and 240.16a-1. /7/ See Section 15(b)(1) of the Securities Exchange Act, 15 U.S.C. 78o(b)(1). /8/ Respondents alleged that the formal order was improper because it did not include a finding that each person being investigated had likely committed a violation. They claimed that the Commission did not have a valid purpose for investigating them and should have given them notice of, and the opportunity to comment on, the commencement of the investigation. In addition, they alleged that the Commission was reinvestigating matters litigated and settled by the parties in 1975. One respondent alleged that the Commission staff's inspection of records on file at the Spokane Stock Exchange violated his constitutional and common law rights to privacy. Respondents also made claims under the Privacy Act, 5 U.S.C. 552a. /9/ The court also determined that the Commission's investigation was lawful (App., infra, 19a). Respondents' claims for damages under the Privacy Act are still pending. /10/ At that time, no subpoena enforcement proceedings relating to this investigation had been initiated. Subsequently, the Commission filed subpoena enforcement actions against some of the respondents and others. SEC v. Magnuson, No. 82-1178-Z (D. Mass. Aug. 11, 1982) (enforcing three Commission subpoenas); and SEC v. Magnuson, No. C-82-282-RJM (E.D. Wash.) (under submission since July 1982). In addition, in Magnuson v. SEC, No. 82-2042 (D. Idaho July 27, 1982), the district court enforced, under the Right to Financial Privacy Act of 1978 (RFPA), 12 U.S.C. 3401 et seq., the Commission's subpoena for certain bank records. In each of these actions, the lawfulness of this investigation was challenged, and, in the two decided cases, the challenges were rejected. /11/ The court of appeals made no attempt to define the term "target," which is not used by the Commission in its investigations. See page 16 & note 41, infra. /12/ The court rejected the Commission's argument that respondents could not seek notice because they lacked standing to challenge third-party subpoenas. See United States v. Miller, 425 U.S. 435, 444 (1976). The court held (App., infra, 7a) that Miller and other standing cases were irrelevant because they concerned the asserted right of targets "to maintain the confidentiality of information held by third parties" rather than "the right to be investigated consistently with the Powell standards." /13/ By contrast, in Wedbush, Noble, Cooke, Inc. v. SEC, No. CV-83-3961 CBM (KX) (C.D. Cal. July 11, 1983) (order granting preliminary injunction), a district court in the Ninth Circuit relied on the decision below in holding that there is a "due process right to notice of third party subpeonas." The court preliminarily enjoined the Commission from issuing third-party subpoenas without notice to the targets. See App., infra, 28a-30a; 714 F.2d 927 (9th Cir. 1983). /14/ The Fifth Amendment privilege against compelled self-incrimination is also inapplicable because a subpoena issued to a third party does not compel the target to give testimony. E.g., Fisher v. United States, 425 U.S. 391, 397 (1976); Couch v. United States, 409 U.S. 322 (1973). Cf. United States v. Washington, 431 U.S. 181, 189 (1977) (one's status as a target of a grand jury investigation "neither enlarges nor diminishes the (Fifth Amendment) protection against compelled self-incrimination," and thus prosecutors need not provide special notice to a target). /15/ The Court specifically cited the Securities and Exchange Commission as an example of an agency that properly draws a distinction between the procedural rights afforded in adjudicatory hearings and investigations (363 U.S. at 446-448). /16/ The Court has analogized agency investigations to grand jury inquiries in other contexts as well. See, e.g., United States v. Powell, 379 U.S. at 57; United States v. Morton Salt Co., 338 U.S. 632, 642 (1950). /17/ Additionally, the Sixth Amendment's Confrontation Clause does not apply because criminal proceedings have not been initiated. Hannah v. Larche, 363 U.S. at 440 n.16, citing United States v. Zucker, 161 U.S. 475, 481 (1896). And respondents made no claim that any third-party subpoenas interfered with their First Amendment rights. See Laird v. Tatum, 408 U.S. 1, 10-11, 13 (1972) (targets have no First Amendment interest in, and hence no standing to challenge, the existence of an allegedly overbroad investigation). /18/ As noted in Hannah v. Larche, 363 U.S. at 427 n.9, such provisions reflect the way Congress customarily "confers the subpoena power on an investigative agency." No suggestion was made in Hannah that this sort of provision provides a statutory basis for requiring notice of third-party subpoenas (see id. at 430-433). /19/ Under the Right to Financial Privacy Act of 1978, 12 U.S.C. 3401(1) and (5), the Commission and many other agencies must notify certain "customers" of specified "financial institutions" regarding subpoenas for their account records. 15 U.S.C. 78u(h). In enacting the RFPA, Congress carefully limited the class of persons entitled to notice (12 U.S.C. 3401(4) and (5)) and limited the requirement to subpoenas for the records of certain financial institutions. Congress also established procedures expressly designed to prevent notice from serving as a "sword for delay and obstruction" of law enforcement investigations. H.R. Rep. 96-1321, 96th Cong., 2d Sess., Pt. 1 at 4 (1980). See 12 U.S.C. 3410(a) and (b). When Congress made the RFPA applicable to the Commission, it devoted special attention to the impact of even this limited notice requirement on the Commission's investigatory subpoenas. Because of problems that notice would create in the investigation of securities law violations, Congress specifically exempted the Commission from the RFPA for a two-year period. 12 U.S.C. 3422. Prior to the expiration of that exemption, Congress enacted a special statutory provision authorizing the Commission to avoid the notice requirements of the RFPA by making an ex parte application to a federal district court. Section 21(h)(2), of the Securities Exchange Act, 15 U.S.C. 78u(h)(2). /20/ When Congress has considered notice desirable, it has enacted notice statutes. See 26 U.S.C. (& supp. V) 7609 (notice procedures for third-party IRA subpoenas); cf. Family Educational Rights and Privacy Act of 1974, 20 U.S.C. (& Supp. V) 1232g. /21/ Section 19(a) of the Securities Act, 15 U.S.C. 77s(a); Section 23(a)(1) of the Securities Exchange Act, 15 U.S.C. 78w(a)(1). /22/ See pages 2-3 & note 4, supra. /23/ Hannah v. Larche, 363 U.S. at 444. See page 12 & note 31, infra. /24/ As discussed above, during its deliberations concerning the Right to Financial Privacy Act of 1978, Congress specifically considered the implications of affording notice of Commission subpoenas to persons under investigation. See page 8 note 19, supra. Congress found that the Commission "had an excellent record with respect to the use of its subpoena authority." H.R. Rep. 96-1321, supra, at 4. Moreover, the court below ignored the presumption of regularity that attaches to administrative action. See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415 (1971); United States v. Chemical Foundation, Inc., 272 U.S. 1, 14-15 (1926). The mere possibility of abuse of investigatory authority does not establish a constitutional defect. In re Groban, 352 U.S. 330, 334 (1957). Cf. United States v. Calandra, 414 U.S. 338, 351-352 (1974) (footnote omitted) (declining "to embrace a view that would achieve a speculative and undoubtedly minimal advance in the deterrence of police misconduct at the expense of substantially impeding the role of the grand jury"). /25/ As this Court has held, courts may not impose upon administrative agencies procedural burdens such as the Ninth Circuit's notice requirement unless a constitutional or statutory right is implicated. FCC v. Schreiber, 381 U.S. 279, 289 (1965). See Steadman v. SEC, 450 U.S. 91, 104 (1981); Vermont Yankee Nuclear Power Corp. v. NRDC, 435 U.S. 519, 543 (1978). /26/ Indeed, five members of the en banc panel of the court below stated, "(t)he rule set forth by the panel opinion goes beyond any reasonable interpretation of (Powell)." App., infra, 26a. /27/ The Commission's statutes afford it broader subpoena authority than than provided by the Internal Revenue Code. See SEC v. Dresser Industries, Inc., 628 F.2d 1368, 1377 (D.C. Cir.) (en banc), cert. denied, 449 U.S. 993 (1980). Moreover, unlike the IRS agents in Powell, Commission attorneys may not issue subpoenas until the Commission's five presidentially-appointed members first determine that subpoena power should be authorized to investigate certain transactions (17 C.F.R. 202.5). /28/ For the same reason, the court of appeals' notice requirement cannot possibly be justified as an exercise of supervisory power over the district courts. The courts of appeals possess no such authority over independent administrative agencies or the Executive Branch. Moreover, even with respect to judicial proceedings, the supervisory power does not "confer on the judiciary discretionary power to disregard the considered limitations of the law it is charged with enforcing" (United States v. Payner, 447 U.S. at 737). /29/ Prior decisions of the Ninth Circuit also conflict with the decision below. See App., infra, 26a; Kelley v. United States, 536 F.2d 897, 899 (1976), cert. denied, 429 U.S. 1047 (1977) (subject of investigation has no Fourth Amendment interest in third party's records and thus no right to notice of investigatory summons); Howfield v. United States, 409 F.2d 694 (1969) (targets of IRS investigation have no right to prevent government's acquisition of information from third-party witnesses). /30/ The Commission conducts as many as 1,200 formal investigations a year (see SEC 48th Annual Report 1982, at 118) and issues thousands of subpoenas in aid of those investigations. For example, during the first quarter of 1983, the Commission issued over 1,400 subpoenas for testimony and documents in the course of 116 non-public, fact-finding investigations in which 305 persons were named in the formal orders of investigation. Even if the Commission were required to give notice only to those persons named in the formal orders, the Commission would have issued over 3,750 notices in the first quarter of 1983 alone, or more than 15,000 on an annual basis. This is but a fraction of the number of notices that would be required by the decision below since formal orders are not intended to identify all persons whose activities may become subject to inquiry. Therefore, under the decision, the Commission may be required to give notice to many persons not named in formal orders. /31/ "There is no principled basis for confining the panel holding to the context of an SEC investigation. It threatens to compromise government investigations by most agencies." Dissent to denial of petition for rehearing en banc. App., infra, 26a. /32/ Notice also would needlessly expose innocent witnesses and subjects to prejudicial publicity, since their identities may no longer be confidential. A witness's participation in an investigation could lead to unfair speculation that he is accused of wrongdoing. Such publicity is particularly harmful when the Commission determines not to bring an enforcement case or not to name certain subjects in the instituted action. Cf. United States v. Sells Engineering, Inc., No. 81-1032 (June 30, 1983), slip op. 5 (footnote omitted) ("by preserving the secrecy of the proceedings, we assure that persons who are accused but exonerated by the grand jury will not be held up to public ridicule'"), quoting Douglas Oil Co. v. Petrol Stops Northwest, 441 U.S. 211, 219 (1979); Illinois v. Abbott & Associates, Inc., No. 81-1114 (Mar 29, 1983), slip op. 5 n.8 (grand jury secrecy rule also protects third parties). Congress has recognized these privacy interests in the Freedom of Information Act. See 5 U.S.C. 552(b)(7)(C); FBI v. Abramson, 456 U.S. 615 (1982). /33/ See Rule 6(e), Fed. R. Crim. P.; United States v. Sells Engineering, Inc., No. 81-1032 (June 30, 1983), slip op. 6. /34/ See generally cases cited, page 7 & note 16, supra. Congress also protected agency inquiries from such potential abuses when, in enacting the Freedom of Information Act, it created an exemption for information in active law enforcement investigative files. See 5 U.S.C. 552(b)(7)(A); NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214 (1978). Courts also have recognized an "investigatory files privilege," which protects information in active law investigative files if its disclosure would compromise the investigation. See, e.g., United States v. Winner, 641 F.2d 825, 831 (10th Cir. 1981); Black v. Sheraton Corp. of America, 564 F.2d 531, 546 (D.C. Cir. 1977); Frankel v. SEC, 460 F.2d 813, 817-818 (2d Cir.), cert. denied, 409 U.S. 889 (1972). /35/ As the court observed in PepsiCo, Inc. v. SEC, 563 F. Supp, at 832, "(o)ne could readily envision investigations in which several targets raise separate objections to each subpoena an agency serves." See, e.g., United States v. Rylander, No. 81-1120 (Apr. 19, 1983), slip op. 9-10 (procedural impediments resulted in a two-year delay before a recipient of an IRS summons was found in contempt for noncompliance). /36/ See, e.g., Reisman v. Caplin, 375 U.S. 440 (1964) (action to enjoin third-party production); Fugazy Continental Corp. v. NLRB, 514 F. Supp. 718, 720-722 (E.D.N.Y. 1981) (court denied motion by subject of NLRB proceeding to intervene in subpoena enforcement action against third parties because subject had no interest in the subpoenaed material); FSLIC v. First National Development Corp., 497 F. Supp. 724, 729, 732 (S.D. Tex. 1980) (court found that motions to intervene in subpoena enforcement action were "primarily motivated by (movants') desire to impede the FSLIC investigation" and denied motions since movants did not have a protected interest in the subpoenaed books and records). /37/ See Sprecher v. Graber, 716 F.2d 968, 971 (2d Cir. 1983) (opposition to subpoena was "frivolous and interposed solely for delay"); Atlantic Richfield Co. v. FTC, 546 F.2d 646, 647 (5th Cir. 1977) (affirming dismissal of action by target against FTC and third-party witnesses "to enjoin the FTC from enforcing the subpoenas and the (third-party witnesses) from voluntarily complying with them"). /38/ As this Court stated in FTC v. Standard Oil Co., 449 U.S. 232, 242 (1980), permitting premature judicial review of agency proceedings would result in "turning prosecutor into defendant" and would cause "interference with the proper functioning of the agency and a burden for the courts." /39/ Cf. Berger v. New York, 388 U.S. 41, 119 (1967) (Appendix to opinion of White, J., dissenting) (noting that confusion arising from judicial decisions and legislation concerning electronic eavesdropping inhibits law enforcement); United States v. National City Lines, Inc., 334 U.S. 573, 591-592 (1948) (footnote omitted) (the uncertainty concerning the outcome of a district court's unprecedented holding "might go far toward defeating the (Clayton) Act's effective application to the most serious and widespread offenses and offenders"). /40/ For example, since the entry of the decisions below, persons whose conduct the Commission is investigating have requested additional "rights" consequent to notice, including the right to be present at the testimony of third-party witnesses, to have access to and copies of testimony and documents obtained by subpoena, and to suppress evidence obtained by the Commission without advance notice to them. /41/ For example, the Commission may investigate unusual trading preceding the announcement of a tender offer for the purpose of determining whether someone traded with advance knowledge of the tender offer in violation of antifraud provisions of the securities laws. In such a case, the thousands of traders who purchased stock of the target company in the days prior to the announcement may be potential subjects. And, in some such cases, the Commission is required to file an enforcement action before identifying all culpable persons. See, e.g., SEC v. Certain Unknown Purchasers of the Common Stock of, and Call Options for, the Common Stock of Santa Fe Int'l Corp., No. 81 Civ. 6553 (WCC) (S.D.N.Y. Nov. 13, 1981) (freezing assets in bank accounts). Appendix Omitted