# Petition — Dresser Industries, Inc. v. Securities & Exchange Commission

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1980
- **Citation:** 449 U.S. 993

## Text

IN THE

Supreme Court of the United States

Ocroser Term, 1980

DRESSER INDUSTRIES, INC.,
Petitioner,
v.
SECURITIES AND EXCHANGE COMMISSION,
Respondent,

UNITED STATES OF AMERICA,
Intervenor.

PETITION FOR A WRIT OF CERTIORARI
TO THE COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Davip R. MacponaLp
Counsel of Record for Petitioner

Francis D. Morrissrty
Paut McCarty
Epwarp E. Dyson

Baker & McKenziz
Attorneys for Petitioner,
Dresser Industries, Inc.

Baker & McKenzie

130 East Randolph Drive
Chicago, Illinois 60601
(312) 861-8000

A ETI NE ES TE, SOE RES TER ES SE NOT STR SRR AAP Tm
La Salle Street Press — Chicago Printed in U.S.A.

i
QUESTIONS PRESENTED

1. Whether the rule adopted by the Supreme Court in
Donaldson v. United States, 400 U.S. 517 (1971), and United
States v. LaSalle National Bank, 437 U.S. 298 (1978), pro-
hibiting the enforcement of administrative subpoenas to
protect the role of an empaneled grand jury, is limited to
summonses issued by the Internal Revenue Service or ex-
tends to subpoenas issued by the Securities and Exchange
Commission (“SEC”) and other administrative agencies.

2. Whether the Court of Appeals’ endorsement of post-
referral enforcement of an SEC subpoena and subsequent
exchange of information with the Justice Department:

a. Permits the Justice Department to conduct dis-
covery during a grand jury investigation outside of the
grand jury, contrary to a holding of the Court of Ap-
peals for the First Circuit ;

b. Permits the SEC (and other agencies empowered
to conduct their own litigation) to infringe on the role
of the grand jury as a principal tool of criminal accu-
sation, contrary to this Court’s interpretation of Article
II, Section 3 of the United States Constitution; and

c. Permits the SEC and Justice Department to avoid
the protections of Rule 6(e) of the Federal Rules of
Criminal Procedure, contrary to holdings of the Courts
of Appeals for the Third and Seventh Circuits and of
the District Court for the Northern District of Cali-
fornia.

3. Whether an agreement entered into by a federal
agency, governing the procedures under which its investi-
gation will be conducted, may be enforced against that
agency.

PARTIES

In the United States Court of Appeals for the District
of Columbia Circuit, the parties originally appearing before
the Court of Appeals panel (the “panel”) were Dresser

ii

Industries, Inc., appellant, and the Securities and Exchange
Commission, appellee.

After the panel’s opinion was rendered, the United States
(through thesDepartment of Justice) was allowed to inter-
vene. The Court of Appeals vacated the panel’s opinion
and ordered a rehearing en banc. The United States then
participated in the rehearing.

Edward R. Luter, Vice President of Dresser, on behalf
of himself and certain other Dresser employees, applied
to the District Court and to the Court of Appeals to inter-
vene in the proceeding. This application was denied by both
courts.

Service of this petition has been made upon all of the
above parties.

iii

TABLE OF CONTENTS

Seema. Freee a osc a bhi sins os oe anv ete eke
POR vn bc kp rucedv is vhs £08 4le Nnccena tetas sonal
CII, FO pre 955945 os he an Ms oe a se
BB eee Eee VCE: LOT ry Tee a EP See L

Constitutional Provisions, Statutes
aE SE RAIN 5 36 ee Now Sg hee 00k wea ues,

NUS AE TR TE ins 6 oreo aac oboe naw ee eeerer
Reasons for Granting the Writ ..............0eeeee:

I. The Opinion of the Court of Appeals Conflicts
with this Court’s Opinions in United States v.
LaSalle National Bank, 437 U.S. 298 (1978), and
Donaldson v. United States, 400 U.S. 517 (1971) ..

II. The Court of Appeals Decision Conflicts with De-
cisions of This Court and with Decisions of Other
Federal Courts of Appeals by (a) Expanding the
Justice Department’s Criminal Discovery Powers;
(b) Permitting the SEC to Infringe on the Role of
the Grand Jury; and (c) Allowing Information to
be Exchanged between the Agencies Outside the
Protections of Rule 6(e) of the Mederal Rules of
Criminal POROGO si oid os 0 ike wh avaeas ecass

A. The Court of Appeals Decision Conflicts with
the Requirement of In Re Melvin That During
a Grand Jury Investigation the Prosecutor
Must Conduct Discovery Only Through the
CUNUNE OUND ec ckcacdeae hdr hes tein eeetieas

11

Ill.

iv

B. The Court of Appeals Justified Its Decision
by Attributing to the SEC Powers That the

SEC Does Not and Constitutionally Cannot
SN EECA) ea sAos dm ce Thos hanes ewer es 14

C. The Court of Appeals Decision Is the First
To Authorize an Exchange of Information be-
tween the Justice Department and the SEC
Without Providing for the Protection of Rule

6(e) of the Federal Rules of Criminal Pro-
RS ss ce ey cent cat bh k Oca kw de Meee 17

The Subpoena Should Not Be Enforced Until the
SEC Honors the Agreement That It Has Ad-
mittedly Entered into with Dresser Governing the
Means by Which the SEC Would Conduct Its

I 5k nc SON AN i eee OK Baie eik eee bs 21
cds os bin Sie eey a tv oe kha 6 das bees Cue 24
Appendices

A. Opinior of the en bane Court of Appeals ...... A-1
B. Opinion of the Panel of the Court of Appeals .. B-1
C. Opinion of the District Court ................ C-1
D. Constitutional Provisions, Statutes and
ee dae cere ng. wa ea es antes D-1
TE. RGU OE W. EOE PEO son cect ewe cdece E-1
F. Affidavit of Barbara N. Brandon .............. F-1

v

TABLE OF AUTHORITIES

Cases
PAGE
Buckley v. Valeo, 424 U.S. 1 (1976) .............005. 11, 16
Donaldson v. United States, 400 U.S. 517 (1971) ..... i, 4, 5, 6,
7, 8, 10, 24

Dow Jones & Co., Inc. v. SEC, No. 79-1238 (D.D.C.,

EY Oe ME, 5 ob uGs.o ce nehe Ay awks aketes cawne 4
Humphrey’s Executor v. United States, 295 U.S. 602

SE Sx 1 ok UG Kaa wie hbckee ek baa nw eee hoa aces 16

ICC v. Southern Ry., 543 F.2d 534, 536 (5th Cir. 1976) 15

In re Grand Jury (General Dynamics Corp.), [Cur-
rent] Fed. Sec. L. Rep. (CCH) § 97,562 ...........

In re Melvin, 546 F.2d 1 (1st Cir. 1976) ............. 11,13
| In re Perlin, 589 F.2d 260 (7th Cir. 1978) ........... 19

Ponzi v. Fessenden, 258 U.S. 254 (1922) ............. 16

Santobello v. New York, 404 U.S. 257 (1971) ......... 23

SEC v. Dresser Industries, Inc., 453 F. Supp. 573
SR: SE, ho caceens Cc dhas ohne den whaeeoans 1, 10, 21

SEC v. Fourth National Bank, [1979 Transfer Binder]
Fed. Sec. L. Rep. (CCH) 96,940 (N.D. Okla. 1979) 8,9

SEC v. Gilbert, 79 F.R.D. 683 (S.D.N.Y. 1978) ...... 8,9
SEC v. OKC Corp., 474 F. Supp. 1031 (N.D. Tex.

ee tl a ee 8, 9, 22
Sherman v. United States, 356 U.S. 369 (1958) ....... 23

Springer v. Philippine Islands, 277 U.S. 189 (1928) ... 16

vi

PAGE
Standard Sanitary Manufacturing Co. v. United States,
et AED -chetnukeye hy Pane cetnedas Ahweas 5
The Grey Jacket, 72 U.S. (5 Wall) 370 (1867) ........ 15
United States v. Birdman, 602 F.2d 547 (3d Cir. 1979),
cert. denied, 444 U.S. 1032 (1980) ................. 20
United States v. Dionisio, 410 U.S. 1 (1973) .......... 13
United States v. Dondich, 460 F.Supp. 849 (N.D. Cal.
EE Cds Piss cutee nen a cannd ae akan eebee ahd 19
United States v. Fields, 592 F.2d 638, cert. denied, 442
Ss OT SE oka tas ke Aud NGas earn ce mehke oe 18
United States v. Kordel, 397 U.S. 1 (1970) ........... 4,5, 20
United States v. LaSalle National Bank, 437 U.S. 298
RNs Gans <kteins Jaws Jaks Ano ee sa aa enone Meee s i, 4, 5, 6, 7,
8, 9, 10, 11,
12, 13, 14,
15, 16, 18,
19, 20, 24
Constitution
SP, Ss EE a bk a pened hae sock aed xecs eer i, 2
Statutes
Foreign Corrupt Practices Act., P.L. 95-213, 91 Stat.
RPE LAUD, ec ccdes caus nitadasceshecisrebian ests 18, 20
Pe es PI hs CUE, CUED Gs wink c'cep cenweeedescecuan 2,14
RG GEG 554s as ob Gs 6ee eae oM Rd owee ns S 2,14
EE ss vn pe dadenac enna ban hedbnent 2,15

ET SOG APS een cc rte tae 2,15

Vii

Rules
Federal Rules of Criminal Procedure

Ng 5.4075" ate Bile Abie Wd 00 4,4. 64 WER ee 8 Oe 17

Legislative History

Excerpts from Legislative History of Foreign Corrupt
Practices Act:

S. Rep. No. 114, 95th Cong., Ist Sess. 11-12 (1977) .. 18, 20

H.R. Rep. No. 95-640, 95th Cong., Ist Sess. 9-11
SU "has dls has hc kM crue Sd 4 oo ewe lee ek ade 18, 20

Miscellaneous

Huffman, “Circuit Opens Door to Parallel Investiga-
tions in Dresser Ruling”, Legal Times of Washing-
Ps has one boo bw hans ee eeene ake 6

“Civil War Among the Federal Agencies,” Barrister,
ee eS nO oot a als ued a Sk noobie we 17

“When the Government Goes to Court, Who Should
Speak for Uncle Sam?”, National Journal, July 5,
Ren RE RS ee Ree ee Sacer, Po wy Ot, MMi 17

IN THE

Supreme Court of the Anited States

Ocroser Term, 1980

DRESSER INDUSTRIES, INC.,

Petitioner,
v.
SECURITIES AND EXCHANGE COMMISSION.
Respondent,
UNITED STATES OF AMERICA,
Intervenor.

PETITION FOR A WRIT OF CERTIORARI
TO THE COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

The petitioner, Dresser Industries, Inc. (“Dresser”)
prays that a writ of certiorari issue to review the judg-
ment of the United States Court of Appeals for the Dis-
trict of Columbia Circuit in this case.

OPINIONS BELOW

The opinion of the District Court for the District of
Columbia is reproduced at Appendix C, infra and pub-
lished at 453 F.Supp. 573 (D. D.C. 1978). The opinion of
the panel of the Court of Appeals is reproduced at Appendix
B, infra. The opinion of the Court of Appeals en banc is
not yet reported. It is reproduced at Appendix A, infra.

JURISDICTION

A judgment was rendered by the Court of Appeals on
July 16, 1980, after a rehearing en banc, which affirmed the
order of the District Court. The mandate of the Court of
Appeals was stayed by the Court of Appeals on August 11,
1980.

The jurisdiction of this Court to issue a writ of certiorari
is invoked under 28 U.S.C. § 1254(1).

CONSTITUTIONAL PROVISIONS, STATUTES
AND RULES INVOLVED

Article II, Section 3 of the United States Constitution
provides :

[The President] shall ... take Care that the Laws be
faithfully executed.

Other statutes and rules involved in this case are set
forth in Appendix D. They are:

15 U.S.C. § 78 u(a), (b) and (d)

26 U.S.C. § 7602

28 U.S.C. §§ 516-519

28 U.S.C. § 547

Federal Rules of Criminal Procedure, Rule 6(e)

3

STATEMENT OF THE CASE
The Court of Appeals below, after a rehearing en banc,

vacated a prior decision of its panel (Bazelon, Sr. J., and
Bryant, Dist. J., sitting by designation; Robb, J.
dissenting) and affirmed the judgment and order of the
District Court, enforcing an SEC administrative sub-
poena against Dresser. The Court of Appeals reached this
decision in the face of the following facts:

(1) The same matter under investigation by the
SEC had previously been referred by the SEC to
the Justice Department for criminal investigation

pinder the same federal securities laws that govern
vue SEC investigation.

(2) The Justice Department, after this referral,
convened a grand jury, which is continuing its investi-
gation and which has subpoenaed and received from

Dresser some (but not all) of the same documents which
the SEC has subpoenaed.

(3) The grand jury investigation is being conducted
under a specific protective order, entered by the Dis-
trict Court supervising the grand jury investigation,
which order extends the secrecy provisions of Rule
6(e) of the Federal Rules of Criminal Procedure
(“Rule 6(e)”) and includes documents as well as testi-
mony, for the purpose of protecting certain Dresser
employees and their families who live or travel abroad.

(4) The documents produced to the SEC by Dresser
will be transmitted by the SEC to the Justice Depart-
ment attorneys conducting the grand jury investigation.

(5) The Justice Department attorneys conducting
the grand jury investigation will share information
and enter into a “close working relationship” with the
SEC attorneys conducting the civil investigation, all
outside the protection of Rule 6(e) and the District
Court’s protective order.

4

(6) The SEC has represented to Dresser that there
is no way that it can assure that the subpoenaed docu- -
ments will not be disclosed pursuant to demands under
the Freedom of Information Act, and has admitted that
such demands have already been made and that a suit
has been filed to obtain the documents in question.
(Dow Jones & Co., Inc. v. SEC, No. 79-1238 (D.D.C.,
filed May 4, 1979)).

The Court of Appeals also approved enforcement of the
SEC subpoena despite the fact that the SEC had failed to
honor an agreement with Dresser that it would in the first
instance examine Dresser’s documents at Dresser’s premises
without taking notes revealing names of persons or coun-
tries, for the purpose of protecting certain Dresser em-
ployees and their families who live or travel abroad.

The panel opinion had allowed enforcement of the SEC
subpoena, but had required the SEC to withhold “the fruits
of the Commission’s civil discovery . . .” in order to “main-
tain the integrity of the criminal discovery process.” Panel
slip op. at 22. The panel’s opinion was based upon the ap-
plicability of this Court’s decisions in United States v.
LaSalle National Bank, 437 U.S. 298 (1978), and Donaldson
v. Umted States, 400 U.S. 517 (1971) to the SEC.

The Court of Appeals, however, authorized the enforce-
ment of the SEC subpoena and the transmission of the sub-
poenaed information to the Justice Department. In doing
so, it limited the application of LaSalle to the IRS and con-
strued four Supreme Court decisions in a manner diamet-
rically contrary to the panel.' To Dresser’s knowledge, no
other court has limited the application of LaSalle to the IRS.

1 These decisions are :

(a) United States v. LaSalle National Bank, 437 U.S. 298
(1978). The panel opinion interpreted LaSalle as applying
to the SEC (panel slip op. at 14, 21) while the en banc

The Court of Appeals proceeded to approve a “close work-
ing relationship” and the “sharing of information” be-
tween the two agencies in their respective criminal and
civil investigations. En banc slip op. at 36, 38. The Court
approved this sharing of information outside the protections
of Rule 6(e), Fed R. Crim. P., on the basis of this Court’s
statement in LaSalle that: “[I]t i* unrealistic to attempt
to build a partial information barrier between the two
branches of the executive.” 437 U.S. at 312. All other
courts that have examined this matter have construed this
statement to authorize interagency cooperation only within
the protection of Rule 6(e).

1 (Continued)

opinion held that decision to be limited to the Internal
Revenue Service (en banc slip op. at 19).

(b) Donaldson v. United States, 400 U.S. 517 (1971). The en
banc opinion also held Donaldson to be restricted to the
Internal Revenue Service (en banc slip op. at 19 n. 25)
while the panel opinion interpreted that decision as pro-
hibiting the enforcement of all post-referral civil subpoenas
(panel slip op. at 14 n. 30).

(c) United States v. Kordel, 397 U.S. 1 (1970). The panel
opinion recognized that Kordel did not involve parallel
criminal a1 . civil investigations (panel slip op. at 16 n. 37)
while the en bane opinion characterized that decision as
sanctioning parallel criminal and civil investigations by
agencies other than the Internal Revenue Service (en bane
slip op. at 13, 18).

(d) Standard Sanitary Manufacturing Co. v. United States, 226
U.S. 20 (1912). The panel opinion interpreted Standard
Sanitary as sanctioning parallel civil and criminal enforce-
ment proceedings but not simultaneous investigations
(panel slip op. at 16 n. 37) while the en banc opinion held
that that decision permitted parallel civil and criminal
investigations (en bance slip op. at 11).

REASONS FOR GRANTING THE WRIT
Preliminary Statement

The Court of Appeals opinion fundamentally alters the
means by which a citizen’s conduct can be investigated by
the executive branch of the government. All parties to this
litigation have acknowledged the far reaching importance
of the issues raised herein. The Court of Appeals itself
noted that it vacated the panel’s decision “[b]ecause of the
importance of this issue [of parallel investigations and
exchange of information between the SEC and the Justice
Department] to enforcement of the regulatory laws of the
United States ...”. En banc slip op. at 3. Moreover, the
SEC general counsel has noted that the Court of Appeals
decision will apply not only to the SEC but to all other
agencies authorized to conduct their own litigation.”

The Court of Appeals decision permits what this Court
sought to avoid by prohibiting the post-referral use of
administrative subpoenas in LaSalle: “The likelihood that
discovery would be broadened or the role of the grand jury
infringed [by] post-referral use of the summons author-
ity ...” 437 U.S. at 312. The decision also allows unlimited
exchange of information between civil and criminal investi-
gative agencies during a grand jury investigation, which
inevitably will result in a breach of grand jury secrecy and
loss of control by the grand jury over its own investiations.

Perhaps more important, the Court of Appeals’ opinion
draws a distinction between the relationship of the SEC and
the IRS vis a vis the Justice Department that has never been
authorized by Congress. Moreover, even were such a dis-
tinction authorized, it would result in an unconstitutional
delegation of executive branch power to the SEC.

2 See Huffman, Circuit Opens Door to Parallel Investigations in
Dresser Ruling, Legal Times of Washington, July 21, 1980 at 1.

7

Dresser respectfully submits that the Court of Appeals’
characterization of the role and functioning of the grand
jury; of the protections accorded by grand jury investiga-
tions; of the relationship between these investigations and
simultaneous civil investigations into the same matters;
and of the Court’s delegation of unlimited subpoena author-
ity to the SEC after that agency refers a matter for criminal
investigation, are appropriate subjects for review by this
Court.

I.

THE OPINION OF THE COURT OF APPEALS
CONFLICTS WITH THIS COURT’S OPINIONS IN
UNITED STATES v. LASALLE NATIONAL BANK,
437 U.S. 298 (1978), AND DONALDSON v. UNITED
STATES, 400 U.S. 517 (1971).

The Court of Appeals’ opinion on rehearing has restricted
the application of this Court’s decisions in LaSalle and
Donaldson to the IRS; the panel of the Court of Appeals
and every lower court confronting this issue have interpreted
the policy concerns of LaSalle and Donaldson to be —
cable to investigations by the SEC.

In United States v. LaSalle National Bank, 437 U.S. 298
(1978), this Court explained a prophylactic rule that
had been propounded in Donaldson v. United States, 400
U.S. 517, 536 (1971). The Donaldson Court had stated that
an IRS summons “may be issued in aid of an [IRS] in-
vestigation if it is issued in good faith and prior to a recom-
mendation for criminal prosecution.” 400 U.S. at 536
(emphasis added). The LaSalle opinion, expanding upon
Donaldson, identified two “policy interests” that preclude
enforcement of a civil summons after criminal reference:

A referral to the Justice Department permits crim-
inal litigation to proceed. The IRS cannot try its own

8

prosecutions. Such authority is reserved to the Depart-
ment of Justice and, more particularly, to the United
States Attorneys. 28 U.S.C. § 547(1). Nothing in § 7602
or its legislative history suggests that Congress in-
tended the summons authority to broaden the Justice
Department’s right of criminal litigation discovery or
to infringe on the role of the grand jury as a principal
tool of criminal accusation. Accord, United States v.
Morgan Guaranty Trust Co., 572 F.2d 36 (CA2 1978) ;
United States v. Weingarden, 473 F.2d 454, 458-459
(CA6 1973); United States v. O’Connor, 118 F.Supp.
248, 250-251 (Mass. 1953); see Donaldson v. United
States, 400 U.S. at 536; cf. Abel v. United States, 362
U.S. 217, 226 (1960). The likelihood that discovery
would be broadened or the role of the grand jury
infringed is substantial if post-referral use of the
summons authority were permitted. 437 U.S. at 312.

Although the majority determined that a “good faith”
test must be saticfied by the IRS prior to referral to the
Justice Department, the Supreme Court was unanimous in
reaffirming the Donaldson rule prohibiting the enforcement
of a civil summons after criminal referral, even if issued
in good faith. See as to the minority opinion, 437 U.S. at
320-21.

The panel of the Court of Appeals, as well as every
other court that has faced the issue, has interpreted the
policy concerns expressed by the Supreme Court in LaSalle
to apply also to the SEC. See the panel slip op. at 14, 21;
SEC v. Fourth National Bank, [1979 Transfer Binder]
Fed. Sec. L. Rep. (CCH) 96,940 (N.D. Okla. 1979); SEC
v. Gilbert, 79 F.R.D. 683, 687 (S.D.N.Y. 1978) ; SEC v. OKC
Corp., 474 F.Supp. 1031, 10388 (N.D. Tex. 1979). See also
In re Grand Jury Subpoena (General Dynamics Corp.),
[Current] Fed. Sec. L. Rep. (CCH) § 97, 562 (D. Conn. May
19, 1980).

The panel opinion (Bazelon, Sr. J.) recognized that
the Justice Department may not “use the SEC’s broad
subpoena power to subvert the limitations of criminal dis-

9

covery.” Panel slip op. at 18. The panel concluded, how-
ever, that the specific remedy of LaSalle need not be ap-
plied in this case. The panel therefore allowed both civil
and criminal investigations to proceed, but prohibited the
SEC from transferring to the Justice Department the fruits
of the SEC’s subpoena. This remedy was based upon re-
peated representations made to the panel by the SEC that
the civil and criminal investigations were separate from
each other. “In this way,” concluded the panel, “we respect
the need to maintain the integrity of the criminal discovery
process and of the grand jury, while permitting the SEC to
go forward with its responsibilities to protect the investing
public.” Panel slip op. at 22-23.

‘ue same solution prescribed by the panel was found to
be appropriate in protecting a grand jury investigation in
the case of SEC v. Fourth National Bank, [1979 Transfer
Binder] Fed. Sec. L. Rep. (CCH) 96,940, at 95,942 (N.D.
Okla. 1979), based upon the SEC’s similar representations
of independence (“The SEC has demonstrated through affi-
davits that no exchange of information is occurring with
respect to the criminal inquiry by the DOJ... .”) and in
SEC v. Gilbert, 79 F.R.D. 683, 687 (S.D.N.Y. 1978), in which
a similar protective order was granted (“However, to pre-
vent the possibility of abuse, the Commission is ordered
not to furnish the U.S. Attorney specially with any informa-
tion procured in the course of discovery in this case.”).

In SEC v. OKC Corp., supra, the district court, applying
the LaSalle doctrine, distinguished situations in which the
SEC did not refer the matter for prosecution. Assuming
‘hat it was possible to build an information barrier between
the Justice Department and a non-referring agency, the
court stated:

By prohibiting post-reference use of the agency
subpoena, the [Supreme] Court recognized that it was

10

promoting agency cooperation without expanding Jus-
tice’s criminal discovery or infringing upon the role of
[the] grand jury .... Only if the non-referring agency
[the SEC] actively assists the Department of Justice
in its investigation do the dangers of broadening Jus-
tice’s discovery and infringing on the province of the
grand jury arise. The cooperation that is both unavoid-
able and encouraged between Justice and the referring
agency, however, is neither inevitable nor even expected
between Justice and a nonreferring agency. The court
is therefore unwilling to hold as a matter of law that
a nonreferring agency’s investigation, commenced inde-
pendently of a criminal investigation referred by a
different agency, must cease simply because of the

pendency of the independent criminal investigation.
474 F. Supp. at 1038.

The Court of Appeals, however, ruled that the LaSalle
and Donaldson opinions did not express a generalized con-
cern of the Supreme Court; and that the LaSalle decision “is
not based on principles generally applicable to parallel civil
and criminal proceedings, but on limitations unique to the
IRS.” En banc slip op. at 19 n. 25. The Court of Appeals did
recognize that the concerns expressed by this Court might
well be generally applicable to all administrative agencies
after an indictment has been returned, a matter stressed
in a separate concurring opinion of Judge Edwards. En
banc slip op. at 14; concurring op. at 1. Prior to an indict-
ment, however, the Court of Appeals concluded that “the
‘policy interests’ of LaSalle have little practical signifi-
cance” in the context of a subpoena enforcement action
of an agency other than the IRS. En banc slip op. at 25.

The first reason for granting the writ of certiorari, there-
fore, is that this Court should resolve the conflict whether
the concerns expressed in LaSalle and Donaldson for the
grand jury process apply generally to civil enforcement

proceedings or whether these concerns are limited to the
IRS.

11

I.

THE COURT OF APPEALS DECISION CONFLICTS
WITH DECISIONS OF THIS COURT AND WITH DECI-
SIONS OF OTHER FEDERAL COURTS OF APPEALS
BY (A) EXPANDING THE JUSTICE DEPARTMENT'S
CRIMINAL DISCOVERY POWERS; (B) PERMITTING
THE SEC TO INFRINGE ON THE ROLE OF THE GRAND
JURY; AND (C) ALLOWING INFORMATION TO BE
EXCHANGED BETWEEN THE AGENCIES OUTSIDE
THE PROTECTIONS OF RULE 6(e) OF THE FEDERAL
RULES OF CRIMINAL PROCEDURE.

The Court of Appeals decision would permit the SEC
and the Justice Department to conduct parallel civil and
criminal investigations into the same matter and freely
exchange the fruits of their respective investigations even
after the matter has been referred to the Justice Depart-
ment and a grand jury has begun its investigation. In addi-
tion to misconstruing and misapplying this Court’s opinion
in Umited States v. LaSalle National Bank, 437 U.S. 298
(1978), the Court of Appeals decision:

(a) Permits the Justice Department to conduct crim-
inal discovery through the SEC, thereby conflicting
with the decision of the Court of Appeals for the First
Circuit in In re Melum, 546 F.2d 1 (1st Cir. 1976), which
holds that, during a grand jury investigation, the Jus-
tice Department may only corduct criminal discovery
through the grand jury;

(b) Allows the SEC and other agencies empowered
to conduct their own litigation to act independently
of the Justice Department in a manner that must result
in infringement on the role of the grand jury, thereby
conflicting with the holding of this Court in Buckley v.
Valeo, 424 U.S. 1 (1976), that the Executive Department
must exercise ultimate control over litigation by the
United States ; and

(c) Sanctions an unfettered exchange of information
between the agencies, thereby conflicting with the plain

12

language of Rule 6(e) of the Federal Rules of Criminal
Procedure, as interpreted by the Courts of Appeals for
the Third and Seventh Circuits and the District Court
for the Northern District of California, all of which
have interpreted LaSalle as sanctioning interagency
cooperation only within the protections of Rule 6(e).

Each of these points is discussed below.

A. The Court of Appeals Decision Conflicts With The
Requirement Of In Re Melvin That During a Grand
Jury Investigation The Prosecutor Must Conduct
Discovery Only Through The Grand Jury.

The Court of Appeals decision dismissed the contention
that the Justice Department should solicit and obtain grand
jury approval if it intends to obtain evidence through
coercive discovery of another agency, concluding that:

Obtaining the approval of the grand jury itself is
not a serious impediment to Justice’s efforts; indeed,
the common practice is for grand jury subpoenas to
be issued in blank, with the contents to be filled in by
the prosecutor. See In re Grand Jury Proceedings, 486
F.2d 85, 87 (3d Cir. 1973). En bane slip op. at 26 n. 33.

Thus, the Court concluded that because grand jury ap-
proval is normally a formality in the issuance of a grand
jury subpoena, grand jury approval is not required, and
the Justice Department can, in effect, utilize the SEC’s
subpoena powers to obtain evidence.

Dresser is not naive regarding the relationship between
prosecutor and grand jury. Dresser does not believe, how-
ever, that because the grand jury is rarely a shield between
the prosecuter and the ordinary citizen, the grand jury has
lost control over its own investigation as a matter of law.
Rather, Dresser understands this Court’s concern in
LaSalle, 437 U.S. at 312, that a post-referral summons may
“infringe on the role of the grand jury as a principal

13

tool of criminal accusation” to mean that the grand jury
should not lose its power to decide whether, when, and in
what manner witnesses or targets of its investigation may
be subjected to coercive discovery. Similarly, the concern
expressed by this Court in LaSalle that the Justice Depart-.
ment’s right of criminal discovery not be broadened may
only be given effect if the Justice Department is required
to conduct that discovery through the grand jury rather
than through an SEC subpoena.

This interpretation is buttressed by the statement of this
Court in United States v. Dionisio, 410 U.S. 1, 17-18 (1973),
that:

The grand jury may not always serve its historic
role as a protective bulwark standing solidly between
the ordinary citizen and an overzealous prosecutor, but
if it is even to approach the proper performance of its
constitutional mission, it must be free to pursue its
investigations unhindered by external influence or
supervision so long as it does not trench upon the
legitimate rights of any witness called before it.

At least one Court of Appeals has interpreted Dionisio as
preventing the Justice Department from obtaining evidence
through coercive process other than a grand jury subpoena
once a grand jury investigation has begun. In In re Melvin,
546 F.2d 1 (1st Cir. 1976), the prosecutor had requested and
obtained a court order under Rule 17, Fed. R. Crim. P., for
the purpose of forcing the defendant to appear at a police
lineup. The Court of Appeals vacated the order, noting that:

[T]he broadcast delegation of a power of this mag-
nitude to the United States Attorney cannot be accepted
if the grand jury’s own role is to remain at all mean-
ingful. Cf. United States v. Dionisio, supra, 410 U.S.
at 23-24, 93 S.Ct. 764 (Douglas J., dissenting). Assum-
ing without deciding that a directive to appear in a
lineup is within the grand jury’s power to issue, we

14

think that the directive has to come from the grand
jury itself and has to be conveyed by the grand jury
to the witness in an appropriately formal fashion.
Thereafter, if the witness will not comply, the court
upon petition of the United States Attorney may in
supplemental proceedings assist the grand jury in
securing compliance. 546 F.2d at 5.

This Court should resolve this conflict and determine
whether the grand jury should control (albeit with the
guidance of the prosecutor) the direction, scope and pace
of its own investigation, or whether that control may be
avoided by the Justice Department’s use of coercive powers
residing in civil agencies.

B. The Court of Appeals Justified Its Decision By
Attributing To The SEC Powers That The SEC Does
Not And Constitutionally Cannot Have.

The Court of Appeals realized that neither the IRS nor
the SEC is statutorily prohibited from issuing subpoenas
in furtherance of their respective statutory mandates after
referring a case to the Justice Department for criminal
investigation. Compare 26 U.S.C. § 7602 with 15 U.S.C.
§ 78u(a), (b), (d). The Court of Appeals, however, refused
to apply this Court’s prophylactic rule against post-referral
summons enforcement to the SEC, because it concluded that
the SEC (but not the IRS) is empowered to conduct its
own enforcement proceedings:

[T]he LaSalle rule applies solely to the statutory
scheme of the Internal Revenue Code, in which the
IRS’s civil authority ceases for all practical purposes
upon referral of a taxpayer’s case to Justice; it does
not apply to the securities laws, in which the SEC’s
civil enforcement authority continues undiminished
after Justice initiates a criminal investigation by the
grand jury. En banc slip op. at 19.

15

This justification for ignoring LaSalle, however, raises
a fundamental statutory and constitutional problem. That
problem results from the fact that the authority of the
SEC to enforce the laws, even though it is greater than the
enforcement authority of the IRS, is subject to the over-
riding responsibility of the Justice Department to protect
the integrity of the criminal investigatory process. The
SEC, therefore, as a quasi-judicial, quasi-legislative body,
cannot constitutionally separate its enforcement authority
from that of the executive branch of government in order
to justify infringement on the grand jury.

The Justice Department has been designated by law as
the agent of the President to control all litigation, civil and
criminal, in which the Attorney General determines that
the United States is interested. See 28 U.S.C. §§ 516-519 and
28 U.S.C. § 547. (Appendix D at D3-D4). Section 518(b),
in particular, reads:

When the Attorney General considers it in the in-
terests of the United States, he may personally con-
duct and argue any case in a court of the United States
in which the United States is interested, or he may
direct the Solicitor General or any officer of the De-
partment of Justice to do so.

In ICC v. Southern Ry., 543 F.2d 534, 536 (5th Cir.
1976), the Fifth Circuit reaffirmed “the traditional re-
sponsibility of the Attorney General over the conduct of all
litigation on behalf of the United States and its agencies.”

See also The Grey Jacket, 72 U.S. (5 Wall) 370 (1867).

There is no provision in the securities laws that negates
the effect of these statutes and decisions. Thus, the Depart-
ment of Justice retains supervisory control over agency
litigation, even over agencies that are statutorily author-
ized to conduct their own court proceedings. If Justice does

16

retain such control, why should it not supervise all civil liti-
gation whenever necessary to give effect to the “policy in-
terests” promulgated by this Court?

Moreover, the concerns here are not solely statutory. In
Buckley v. Valeo, 424 U.S. 1, 138 (1976), this Court held
that “[a] lawsuit is the ultimate remedy for a breach of law,
and it is to the President, and not to the Congress, that the
Constitution entrusts the responsibility to ‘take Care that
the Laws be faithfully executed,’ [U.S. Const.] Article II,
§ 3.” This Court has further identified the Department of
Justice as “the hand of the President in taking care that
the laws of the United States in protection of the interests
of the United States in legal proceedings and in the prose-
cution of offenses be faithfully executed”. Ponzi v. Fessen-
den, 258 U.S. 254, 262 (1922).

In the light of Buckley v. Valeo, any delegation of “un-
diminished” authority to the SEC to violate the policy in-
terests governing the role of the grand jury would be an
unconstitutional delegation of executive power to an agency
outside of the control of the President. See Springer v.
Philippine Islands, 277 U.S. 189, 202 (1928) ; Humphrey’s
Executor v. United States, 295 U.S. 602 (1935).

Nevertheless, the Court of Appeals concluded that the

LaSalle opinion’s policy interests are inapplicable to the
SEC:

In the case of an SEC investigation there is no call
for a “prophylatic rule”, and thus no need to ponder
the import of these “policy interests,” because the
SEC’s authority to issue the subpoena remains undi-
minished after the start of a grand jury investigation.
En banc slip op. at 25.

This Court should ate oa the issue whether
the SEC (unlike the IRS) can justify trenching upon the

17

independence of the grand jury by reason of its statutory
litigative power, when the entire litigative power of the
government is vested in the executive branch.®

CO. The Court Of Appeals Decision Is The First To
Authorize An Exchange Of Information Between The
Justice Department And The SEC Without Pro-
viding For The Proteciion Of Rule 6(e) Of The
Federal Rules Of Criminei Procedure.

Rule 6(e) (2) explicitly prohibits disclosure by “attorneys
for the government” of “matters occurring before the
grand jury” except as specifically authorized in Rules
6(e)(3)(A) and (C). Neither of these exceptions authorizes
the unregulated sharing of grand jury investigatory in-
formation between the Justice Department and the SEC
for the purpose of furthering the SEC’s civil investigation.

Nevertheless, the Court of Appeals decision specifically
authorized both the “sharing of information” and “a close
working relationship” between the two agencies “when they

3 The power to litigate civil cases has recently become the subject
of heated discussion within the executive branch and among the
“independent” agencies. See “Civil War Among the Federal Agen-
cies,” Barrister, Fall 1978, Vol. 5, No. 4 at 8; “When the Govern-
ment Goes to Court, Who Should Speak for Uncle Sam?” National
Journal, July 5, 1980 at 1098-9.

*“Attorney for the government” as defined in Rule 54(c), Fed.
R. Crim. P., as follows:

“Attorney for the government” means the Attorney General,
an authorized assistant of the Attorney General, a United
States Attorney, an authorized assistant of a United States
Attorney and when applicable to cases arising under the laws
of Guam means the Attorney General of Guam or such other

person or persons as may be authorized by the laws of Guam to
act therein.

18

are investigating the same sort of offense” under the secu-
rities laws, even after a grand jury has been convened.
See generally en banc slip op. at 34-40. If aliowed to remain
as law, this authorization to a prosecuting attorney conduct-
ing a grand jury investigation will inevitably result in
repeated breaches of grand jury secrecy that will plague
this Court and lower courts with litigation.

As authority for this unprecedented breach of grand jury
secrecy, the Court of Appeals cited (1) this Court’s state-
ment in LaSalle, 437 U.S. at 312, that “it is unrealistic to
attempt to build a partial information barrier between the
two branches of the executive” and (2) the legislative his-
tory of the Foreign Corrupt Practices Act of 1977, 91 Stax.
1494. Excerpts of the legislative history are reproduced in
App. D at D6-D10.5

When read in context, this Court’s statement concerning
the “partial information barrier” does not license an ex-
change of information outside the protections of Rule 6(e).
The full statement reads as follows: |

For example, the IRS upon referral loses its ability
to compromise both the criminal and the civil aspects
of a fraud case. 26 USC § 7122(a). After the referral,
the authority to settle rests with the Department of
Justice. Interagency cooperation on the calculation of
the civil liability is then to be expected and probably
encourages efficient settlement of the dispute. But such
cooperation, when combined with the inherently inter-
twined nature of the criminal and civil elements of the

5’ The Court of Appeals opinion also relied upon the Second
Circuit’s opinion in United States v. Fields, 592 F.2d 638, 646
(2d Cir. 1978), cert. denied, 442 U.S. 917 (1979). The Fields
opinion, however, quite clearly lends no authority to the proposition
that grand jury information can be shared with the SEC outside of
Rule 6(e), because the Court in Fields dealt only with pre-referral
cooperation.

19

case, suggests that it is unrealistic to attempt to build
a partial information barrier between the two branches
of the executive. Effective use of information to de-
termine civil liability would inevitably result in crim-
inal discovery. The prophylactic restraint on the use
of the summons effectively safeguards the two policy
interests while encouraging maximum interagency
cooperation. 437 U.S. at 312-13 (footnote omitted).

Every court other than the Court of Appeals that has
had occasion to construe this passage has construed it to
mean that the “interagency cooperation” between a civil
agency and the Justice Department should take place within
Rule 6(e). As was noted in United States v. Dondich, 460
F.Supp. 849 (N.D. Cal. 1978), after quoting the above
passage from LaSalle:

In cases in which the disclosure of grand jury infor-
mation to civil investigators would be inappropriate,
safeguards short of dismissing the indictment are
available. Rule 6(e) is, after all, designed to regulate
government attempts to obtain such disclosure. Pro-
tective orders against the disclosure of grand jury
testimony can be issued, and, if in fact information
has been improperly disclosed, it would appear more
appropriate to halt the civil proceeding, which has
improperly benefited from the grand jury investiga-
tion, than to dismiss the indictment. 460 F.Supp. at 858.

And in In re Perlin, 589 F.2d 260 (7th Cir. 1978), the
Court of Appeals for the Seventh Circuit cited LaSalle
as authority for the participation of Commodities Futures
Trading Commission attorneys in grand jury proceedings
but the Court left no doubt that it required such coopera-
tion to take place within the confines of Rule 6(e). The
Court of Appeals noted:

[T]he history of the amendments of Rule 6(e) so
clearly indicates the continuing Congressional support

20

for interagency cooperation and the active participa-
tion of agency personnel, including agency attorneys,
in grand jury proceedings.

The purpose of the amendments to Rule 6(e) was
to enable Federal agents to lend their assistance to
government prosecutors ....589 F.2d at 267.

In United States v. Birdman, 602 F.2d 547 (3rd Cir.
1979), cert. denied, 444 U.S. 1032 (1980), the Court of Ap-
peals referred to the policy of favoring “intergovernmental
cooperation in criminal prosecutions” as follows:

This policy is implemented in 28 U.S.C. §515(a) and
in the recent amendments to F. R. Crim. P. 6(e). The
Supreme Court has recently noted the importance of
such intragovernmental cooperation in United States v.
LaSalle National Bank, 437 U.S. 298, 312-13, 98 S. Ct.

2357, 57 L. Ed.2d 221 (1978). 602 F.2d at 563 (foot-
notes omitted).

Nor does the legislative history of the Foreign Corrupt
Practices Act authorize the novel disclosure rule promul-
gated by the Court of Appeals. Without arguing the point
at length in this petition, it will suffice to quote the panel’s
response to this argument:

Indeed, the very passage cited by the SEC [from the
Foreign Corrupt Practices Act] lends support to our
interpretation. Cooperation between the SEC and Jus-
tice is consistent with Kordel [397 U.S. 1 (1970)] and
LaSalle while the investigation is undifferentiated in
its civil and criminal aspects. It is only after the civil
and criminal aspects of a case diverge [i.e., after com-
mencement of the grand jury proceedings] that it is
appropriate to protect a potential criminal defendant

from abuse of the civil discovery process. (panel slip
op. at 20 n. 48).

This Court should clarify the LaSalle opinion’s endorse-
ment of “interagency cooperation” to specify whether such
cooperation should take place within or outside Rule 6(e).

21

IIT.

THE SUBPOENA SHOULD NOT BE ENFORCED UNTIL
THE SEC HONORS THE AGREEMENT THAT IT HAS
ADMITTEDLY ENTERED INTO WITH DRESSER
GOVERNING THE MEANS BY WHICH THE SEC
WOULD CONDUCT ITS INVESTIGATION.

This is not a typical SEC investigation into possible
wrongdoing by a corporate registrant. Rather, this dispute
arose because Dresser was one of 400 companies to volun-
teer for what later became known as the SEC’s Voluntary
Disclosure Program. The Program was designed to induce
disclosure of overseas corporate payments, as to which the
SEC was for the first time developing a disclosure policy.®
At a meeting between Dresser personnel and the SEC staff
in January of 1976, Dresser expressed concern that dis-
closure of such transactions, accompanied by wide publicity
abroad, could endanger both Dresser’s employees stationed
abroad and their families. Dresser’s preliminary review had
indicated that many of the transactions that Dresser might
disclose in a Form 8-K had occurred in third world countries,
some of which are quite hostile to the United States. Certain
Dresser employees and their families are located in these
countries and would be exposed to retaliation by foreign
nationals should any of these transactions receive local
publicity.’ Also, many of the payments appeared to have
been made as a result of extortionate demands that threat-

® Response of Commissioner Loomis to Congressman Nix, August
5, 1975.

7 J. A. p. 492 (Luter Affidavit, par. 6) : “In one such country the
company employees, by necessity, live in a small, self-sufficient
compound, behind walls, and they and their families could be com-
pletely exposed to terrorist activities in retaliation against Dresser
for any action for which Dresser might be blamed.”

ened Dresser employees’ lives and property overseas.®
Dresser agreed to enter the Voluntary Disclosure Program
in return for the SEC’s commitment of confidentiality de-
scribed below and in the Affidavit of W. Lyall Milde, re-
produced as Appendix E.

The District Court, without considerine the agreement
that had actually been reached between Dresser and the
SEC, concluded that “[t]hroughout the voluntary disclos-
ure program the SEC reserved its rights to pursue a formal
investigation and issue subpoenas if necessary. It is readily
apparent that the SEC never agreed to completely forego
its rights to subpoena the material in question.” 453 F.Supp.
at 575.

The Court of Appeals below concluded that this deter-
_ mination was not “clearly erroneous”. En banc slip op. at 41.

Dresser has never contended that the SEC did not reserve
its rights to pursue a formal investigation and issue sub-
poenas if necessary. Dresser does contend, however, that
the SEC, in an agreement of a kind commonly entered into
by lawyers of good will to facilitate a solution to difficult and
potentially litigious problems, committed itself to examine
Dresser’s documents in the first instance without taking
copies or making notes that would identify names and
countries. The SEC admits that the SEC staff “agreed to
conduct an initial review of such documents on the premises
of Dresser’s counsel, and that any notes taken at the time
would not include the names of individuals or foreign coun-

8 J. A. p. 492, (Luter Affidavit, par. 6): “On one occasion a
Dresser employee was approached by a government official who
solicited a bribe in connection with a review of Dresser’s taxes. The
Dresser employee was told by local counsel hired in the country in
question that if he reported the bribe, the employee would not leave
that country alive.”

23

tries.” Affidavit of Barbara N. Brandon, SEC attorney,
Appendix F at F-2. A failure to determine the existence
of an agreement explicitly admitted by the SEC must be
clearly erroneous.

Had the SEC honored its agreement, this litigation would
probably never have been necessary, because the SEC would
have satisfied itself that Dresser’s SEC filings were accu-
rate and complete.

While normally this Court should not concern itself with
issues of contract law, this agreement arose out of a far
reaching program of the SEC to induce corporations to
join with it in order to solve a problem that the SEC had
never previously faced and which it found to be too large
for its staff. The SEC was successful. Based on various
inducements, no fewer than 400 major corporations joined
the SEC’s program and conducted extensive investigations
into their own affairs.

Voluntary participation in government programs is fun-
damental to the proper functioning of government admin-
istration. Such participation must be based upon public
confidence in the government, which Justice Frankfurter
once characterized as a “transcending value.” Sherman v.
Umted States, 356 U.S. 369, concurring opinion at 380
(1958). This Court has demonstrated a willingness to order
the enforcement of government commitments where an
“essential component of the administration of justice” is
involved. See Santobello v. New York, 404 U.S. 257, 260
(1971), which involved a plea bargaining agreement. The
public’s willingness to rely on governmental inducements
to voluntary action is of no less importance to the proper
functioning of government.

24

CONCLUSION

The net effect of the decision of the Court of Appeals, if
allowed to stand, will be:

(a) To enable the use of information to determine
civil liability inevitably to result in criminal discovery,
thus expanding the Justice Department’s right of
criminal discovery and infringing on the role of the
grand jury as a principal tool of criminal accusation.

(b) To enable the subpoenaed documents to be in
the possession of, and examined by, both the SEC and
the Justice Department outside of the secrecy provi-
sions of Rule 6(e) and, indeed, outside of the safe-
guards provided by the order entered by the District
Court supervising the grand jury.

(c) To enable the SEC to ignore a commitment to
Dresser, upon which Dresser relied to its detriment
and to the detriment of its employees and their fam-
ilies who live and travel overseas.

The opinion of the Court of Appeals, if allowed to
stand, will result in the circumvention of the requirements
of this Court in LaSalle and Donaldson; the evasion of
the protections and limitations embodied in Rule 6(e);
and a conflict among the Circuits regarding the means by
which grand jury investigations are to be conducted. For

25

these reasons, we respectfully suggest that a writ of cer-
tiorari be granted.

Respectfully submitted,

Davi R. MacponaLp
Counsel of Record for Petitioner

Francis D. Morrisszty
Pavut McCartuy
Epwarp 5. Dyson

Baxer & McKenzie
Attorneys for Petitioner,
Dresser Industries, Inc.

Baker & McKenziz

130 East Randolph Drive
Chicago, Illinois 60601
(312) 861-8000

; A-1 Appendix A

Notice: This opinion is subject to formal revision before publication
in the Federal Reporter or U.S.App.D.C. Reports. Users are requested
to notify the Clerk of any formal errors in order that corrections may be
made before the bound volumes go to press.

United States Court of Appeal

FOR TilE DISTRICT OF COLUMBIA CIRCUIT

No. 78-1702
SECURITIES AND EXCHANGE COMMISSION
Vv.
DRESSER INDUSTRIES, INC., APPELLANT

UNITED STATES, INTERVENOR °

No. 78-1705
SECURITIES AND EXCHANGE COMMISSION
v.

DRESSER INDUSTRIES, INC.
EDWARD R. LUTER, APPELLANT

UNITED STATES, INTERVENOR

Bills of costs must be filed within 14 days after entry of judgment. The
court looks with disfavor upon motions to file bills of costs out of time.

A-2

Appeals from the United States District Court
for the District of Columbia

(D.C. Miscellaneous No. 78-0141)

Argued en bane April 15, 1980
Decided July 16, 1980

David R. MacDonald, with whom Francis D. Morrissey
and Edward E. Dyson were on the brief, for appellant
Dresser Industries, Inc.

Raymond G. Larroca, Herbert J. Miller, Jr., and
Thomas B. Carr were on the supplemental memorandum
for appellant Edward R. Luter.

Paul Gonson, Principal Associate General Counsel, Se-
curities and Exchange Commission, with whom Ralph C.
Ferrara, General Counsel, Michael K. Wolensky, Asso-
ciate General Counsel, and James H. Schropp and John
P. Sweeney, Assistant General Counsel, Securities and
Exchange Commission, were on the brief, for appellee.

Irvin B. Nathan, Deputy Assistant Attorney General,
with whom Phillip B. Heymann, Assistant Attorney Gen-
eral, and Stephen G. Milliken, Attorney, Department of
Justice, were on the brief, for intervenor.

Before WRIGHT, Chief Judge, and MCGOWAN, TAMM,
ROBINSON, MACKINNON, ROBB, WILKEY, WALD, MIKvA,
and EDWARDS, Circuit Judges.

Opinion for the court filed by Chief Judge WRIGHT.
Concurring statement filed by Judge EDWARDS.

WRIGHT, Chief Judge: Dresser Industries, Inc. (Dres-
ser) appeals from a decision of the District Court? re-
quiring obedience to a subpoena duces tecum issued by

1 Reported at 458 F.Supp. 573 (D. D.C. 1978).

A-3

the Securities and Exchange Commission (SEC) on April
21, 1978, and denying Dresser’s motion to quash the sub-
poena.? The subpoena was issued in connection with an
SEC investigation into Dresser’s use of corporate funds
to make what are euphemistically called “questionable
foreign payments,” and into the adequacy of Dresser’s
disclosures of such payments under the securities laws.

The principal issue facing this en banc court is whether
Dresser is entitled to special protection against this SEC
subpoena because of a parallel investigation into the
same questionable foreign payments now being conducted
by a federal grand jury under the guidance of the United
States Department of Justice (Justice). Dresser argues
principally that the SEC subpoena abuses the civil dis-
covery process of the SEC for the purpose of criminal
discovery and infringes the role of the grand jury in
independently investigating allegations of criminal wrong-
doing. On November 19, 1979 a panel of this court issued
a decision affirming the District Court but, with Judge
Robb dissenting, attaching a condition prohibiting the
SEC from providing Justice with the information re-
ceived from Dresser under this subpoena. Because of the
importance of this issue to enforcement of the regulatory
laws of the United States, this court voted to vacate the
panel opinions and rehear the case en banc.

I. BACKGROUND

A. Origin of the Investigations

Illegal and questionable corporate payments surfaced
as a major public problem in late 1973, when several
major scandals implicated prominent American corpora-

2In No. 78-1705 Mr. Edward R. Luter, a senior vice presi-
dent of Dresser, appeals from an order denying his motion to
intervene in the subpoena enforcement proceeding. See text
at pp. 34-35 infra.

A-4

tions in improper use of corporate funds to influence
government officials in the United States and foreign
countries. The exposure of these activities disrupted pub-
lic faith in the integrity of our political system and
eroded international trust in the legitimacy of American
corporate operations abroad.* SEC investigation revealed
that many corporate officials were falsifying financial
records to shield questionable foreign and domestic pay-
ments from exposure to the public and even, in many
cases, to corporate directors and accountants. Since the
completeness and accuracy of corporate financial report-
ing is the cornerstone of federal regulation of the securi-
ties markets, such falsification became a matter of grave
concern to the SEC.*

Beginning in the spring of 1974 the SEC brought a
series of injunctive actions against certain American cor-
porations. It obtained consent decrees prohibiting future

? The Senate Committee on Banking, Housing, and Urban
Affairs reported in May 1977:

Recent investigations by the SEC have revealed corrupt
foreign payments by over 300 U.S. companies involving
hundreds of millions of dollars. These revelations have
had severe adverse effects. Foreign governments friendly
to the United States in Japan, Italy, and the Netherlands
have come under intense pressure from their own people.
The image of American democracy abroad has been
tarnished. Confidence in the financial integrity of our
corporations has been impaired. The efficient functioning
of our capital markets has been hampered.

S. Rep. No. 114, 95th Cong., 1st Sess. 3 (1977).

* The history of the SEC’s involvement with questionable
and illegal foreign payments is recounted briefly in Report
of the Securities and Exchange Commission on Questionable
and Illegal Corporate Payments and Practices, submitted to
the Senate Committee on Banking, Housing, and Urban
Affairs, 94th Cong., 2d Sess. (Comm. Print 1976), reprinted
in CCH FEDERAL SECURITIES LAW REPORTS, No. 642 (May 19,
1976) (hereinafter cited as Report).

L

A-5

violations of the securities laws and establishing internal
corporate procedures for investigation, disclosure, and
prevention of illegal corporate payments. However, the
problem of questionable foreign payments proved so wide-
spread that the SEC devised a “Voluntary Disclosure
Program” to encourage corporations to conduct investiga-
tions of their past conduct and make appropriate dis-
closures without direct SEC coercion.® Participation in
the Voluntary Disclosure Program would not insulate a
corporation from an SEC enforcement action, but the
Commission would be less likely to exercise its discretion
to initiate enforcement actions against participants.* The
most important elements of the Voluntary Disclosure
Program were (1) an independent committee of the cor-
poration would conduct a thorough investigation into
questionable foreign and domestic payments made by the
corporation; (2) the committee would disclose the results
of this investigation to the board of directors in full;
(3) the corporation would disclose the substance of the
report to the public and the SEC on Form 8-K; and
(4) the corporation would issue a policy statement pro-
hibiting future questionable and illegal payments and
maintenance of false or incomplete records in connection
with them.” Except in “egregious cases” the SEC would
not require that public disclosures include specific names,
dates, and places. Rather, the disclosures might be
“generic” in form.* Thus companies participating in the
Voluntary Disclosure Program would ordinarily be spared
the consequences to their employees, property, and busi-
ness that might result from public disclosure of specific

5 The Voluntary Disclosure Program is described in id. at
8-13.

* Jd. at 8 n.7.
7 See id. at 8-10.
8 Jd. at $2.

A-6

instances of foreign bribery or kickbacks. However, com-
panies participating in the Voluntary Disclosure Program
had to agree to grant SEC requests for access to the
final report and to the unexpurgated underlying docu-
mentations.°®

B. The Dresser Investigations

On January 27, 1976 an attorney and other repre-
sentatives of Dresser met with members of the SEC staff
to discuss a proposed filing. At the meeting Dresser
agreed to conduct an internal inquiry into questionable
foreign payments, in accordance with the terms of the
Voluntary Disclosure Program.’® The next day Dresser
submitted a Form 8-K describing, in generic terms, one
questionable foreign payment. Joint Appendix (JA) 100-
102. On November 11, 1976 Dresser filed a second Form
8-K reporting the results of the internal investigation.
JA 103-108. On February 10, 1977 the company supple-
mented this report with a third Form 8-K concerning a
questionable payment not reported in the earlier reports.
JA 109-118. The reports concerned Dresser’s foreign
activities after November 1, 1978. All disclosures were
in generic, not specific, terms.

As part of its general monitoring program the SEC
staff requested access to the documents underlying Dres-
ser’s report. On July 15, 1977 Dresser refused to grant
such access. The company argued that allowing the staff
to make notes or copies might subject its documents to
public disclosure through the Freedom of Information
Act." Dresser stated that such disclosure could endanger

*Jd. at 9 n.8.

10 The meeting is described by Mr. W. Lyall Milde in a depo-
sition reprinted in Joint Appendix (JA) 64-66.

u JA 71-76.

?

A-7

certain of its employees working abroad. During the
ensuing discussions with the staff Dresser attempted to
impose conditions of confidentiality upon any SEC ex-
amination of its documents, but the staff did not agree."®
Instead, it issued a recommendation to the Commission
for a formal order of investigation in the Dresser case.
This recommendation was predicated on the staff’s conclu-
sions that Dresser:

1. may have used corporate funds for non-corporate
purposes ;

2. may have made false and misleading statements
concerning the existence of and circumstances
surrounding material obligations of Dresser to
certain foreign governments and to other entities;
and

8. may have made false entries and caused false
entries to be made upon the books and records of
Dresser, and its affiliates and subsidiaries with
respect to, among other things, payments to for-
eign government officials.

JA 7-8 (order directing private investigation and desig-
nating officers to take testimony). Moreover, the staff
reported that Dresser’s proxy soliciting materials, re-
ports, and statements may have been misleading with
respect to the potential risks involved in its conduct of
business through questionable foreign payments, and may
have included false statements in connection with such
payments. JA 8. Dresser vigorously opposed issuance of
an order of investigation.

BJA 74.

13 The staff offered to give Dresser 10 days notice before
releasing any Dresser documents to the public, to enable the
company to challenge such release in court. JA 12.

14 See JA 77 et seq.

A-8

Meanwhile, the Department of Justice had established
a task force on transnational payments to investigate
possible criminal violations arising from illegal foreign
payments. Two SEC attorneys participated in the task
force. In the summer of 1977 the Justice task force
requested access to SEC files on the approximately 400
companies, including Dresser, that had participated in
the Voluntary Disclosure Program.** Pursuant to Com-
mission authorization the SEC staff transmitted all such
files to the Justice task force in August 1977.'* After its
preliminary investigation of the Form 8-K’s submitted by
Dresser under the Voluntary Disclosure Program, Justice
presented Dresser’s case to a grand jury in the District
of Columbia on January 25, 1978.

Before any summons or subpoena had issued in either
the SEC or the grand jury investigation, Dresser filed
suit in the Southern District of Texas against the SEC
and Justice to enjoin any further investigation of it by
either agency.” While Dresser’s suit was pending in the
Southern District of Texas, the District of Columbia
grand jury subpoenaed Dresser’s documents on April 21,
1978. At roughly the same time the SEC issued a formal
order of private investigation, authorizing the staff to
subpoena the documents and to obtain other relevant
evidence. JA 7-9 (April 11, 1978). Pursuant to that
order the staff issued a subpoena duces tecum, returnable
on May 4, 1978. JA 14-16 (April 21, 1978). This sub-
poena covered substantially the same documents and
materials subpoenaed by the grand jury, and more.
Dresser did not respond to the subpoena.”*

15 JA 295-296 (statement by Marvin G. Pickholz).
16 Jd.

17 Dresser Industries, Inc. v. United States, Civil Action No.
H-78-405 (S.D. Tex.).

18 The procedural history of this case is recounted in Dres-
ser’s motion to quash the SEC subpoena, JA 160-163.

A-9

On May 1, 1978 the District Court in Houston, Texas
dismissed Dresser’s suit against Justice without opinion.
Three days later, after the period for compliance with
its subpoena had lapsed, the SEC applied to the District
Court for the District of Columbia for enforcement. In
the meantime, Dresser had appealed the adverse judg-
ment in the Texas action to the Fifth Circuit, and sought
interim relief. On May 5 Judge Coleman of the Fifth
Circuit enjoined further prosecution of the SEC subpoena
enforcement action until after the District Court for the
Southern District of Texas had ruled on Dresser’s action
against the SEC. Judge Coleman also obtained a stipula-
tion from Justice that Justice would not require Dresser
or its agents to appear before the grand jury until after
the Company had filed a motion to quash the grand jury
subpoena in the District of Columbia and had received a
ruling on such motion.

On May 8, 1978 Dresser filed a motion to quash the
grand jury subpoena in the District Court for the Dis-
trict of Columbia. On May 19 the District Court (Parker,
J.) denied Diesser’s motion to quash, but imposed a
protective order requiring strict confidentiality in accord-
ance with Rule 6/e) of the Federal Rules of Criminal
Procedure. In imposing the protective order the court
stated that the “concern of Dresser and especially its
employees is not illusory and should not be lightly con-
sidered.” See JA 163. This was in reference to Dresser’s
argument that public disclosures of the names, places, and
dates connected with its questionable foreign payments
could endanger the lives of its employees in certain tur-
bulent foreign countries. Dresser thereafter complied with
this grand jury subpoena.

On May 26, 1978 the Southern District of Texas dis-
missed Dresser’s action against the SEC without reach-
ing the merits. Dresser appealed to the Fifth Circuit and
on June 8 obtained an order from the court that:

A-10

Until the appeal in this case shall have been de-
cided in this court, and except for proceedings before
the Grand Jury in the District of Columbia, the
Securities and Exchange Commission, its officers and
employees, are enjoined to preserve inviolate the con-
fidentiality of any information obtained by the sub-
poena here in issue. This order is not intended to
interfere with pending proceedings in the District
of Columbia to enforce the SEC subpoenas.

JA 202. On June 2, 1978 the District Court for the Dis-
trict of Columbia issued an order to Dresser to show
cause why it should not be required to appear, give testi-
mony, and produce records in obedience to the SEC sub-
poena. JA 141. On June 7 Dresser filed a motion for
leave to obtain discovery from the SEC concerning the
agency’s alleged bad faith and attempted abuse of the
judicial process, JA 27, and on June 18 filed a motion
to quash the SEC subpoena. JA 160.

The District Court (Flannery, J.) denied Dresser’s
motion to compel discovery on June 16, without opinion.
Judge Flannery explained in court that he had carefully
examined the papers filed by Dresser, that discovery is
rarely necessary in subpoena enforcement cases, and that
he did not think this was an appropriate case for it.
JA 256. Then, on June 30, 1978, the District Court
(Flannery, J.) issued a memorandum opinion and order
rejecting all of Dresser’s objections to the SEC subpoena
and requiring Dresser to comply with the subpoena within
ten days after notice from the SEC. JA 301, reported
at 453 F.Supp. 573 (D. D.C. 1978). Rehearing was
denied on July 15. This appeal followed.

Meanwhile, the United States Court of Appeals for
the Fifth Circuit affirmed the decisions of the District
Court for the Southern District of Texas dismissing
Dresser’s actions against Justice and the SEC in that
court, largely on ripeness grounds. Dresser Industries,

A-1l

Inc. v. United States, 596 F.2d 1281 (5th Cir. 1979),
cert. denied, —— U.S. ——, 48 U.S. L. WEEK 3465
(January 21, 1980). Accordingly, the interlocutory in-
junction requiring the SEC to preserve inviolate the
confidentiality of Dresser’s materials pending a decision
on appeal was dissolved.

Having set forth the complicated procedural history
of this case, we turn now to the principles that govern
parallel administrative and criminal proceedings concern-
ing the same conduct.

II. GENERAL PRINCIPLES

A. Parallel Investigations

The civil and regulatory laws of the United States fre-
quently overlap with the criminal laws, creating the pos-
sibility of parallel civil and criminal proceedings, either
successive or simultaneous.'’* In the absence of substan-
tial prejudice to the rights of the parties involved, such
parallel proceedings are unobjectionable under our juris-
prudence. As long ago as 1912 the Supreme Court recog-
nized that under one statutory scheme—that of the
Sherman Act—a transaction or course of conduct could
give rise to both criminal proceedings and civil suits.
Standard Sanitary Manufacturing Co. v. United States,
226 U.S. 20, 52 (1912). The Court held that the govern-
ment could initiate such proceedings either “simultane-
ously or successively,” with discretion in the courts to
prevent injury in particular cases. Jd. It explained:

The Sherman Act provides for a criminal proceeding
to punish violations and suits in equity to restrain
such violations, and the suits may be brought simul-
taneously or successively. The order of their bringing
must depend upon the Government; the dependence

19 See generally Note, Concurrent Civil and Criminal Pro-
ceedings, 67 COLUM. L. REV. 1277 (1967).

A-12

of their trials cannot be fixed by a hard and fast
rule or made imperatively to turn upon the charac-
ter of the suit. Circumstances may determine and
are for the consideration of the court. An imperative
rule that the civii suit must await the trial of the
criminal action might result in injustice or take
from the statute a great deal of its power. * * *
Id.

The Supreme Court returned to this theme in United
States v. Kordel, 397 U.S. 1 (1970). In that case the
Food and Drug Administration (FDA) investigated a
company and certain of its officers in connection with
possible violations of the Federal Food, Drug, and Cos-
metic Act, 21 U.S.C. § 301 et seg. Early in the investiga-
tion the FDA recommended and the United States At-
torney filed an in rem action in federal district court
seeking civil seizure of certain products. In connection
with this suit the FDA filed extensive interrogatories
with the company. Before the company had responded
the FDA notified it that the agency was contemplating a
criminal proceeding against it in connection with the
same alleged violations of the statute. The company
therefore moved to stay civil proceedings or, in the alter-
native, to extend the time for answering the interroga-
tories until after disposition of the criminal proceedings.
The District Court denied this motion. Thereafter, but
still before the company had filed its answers to the
interrogatories, the regional and divisional offices of the
FDA formally recommended criminal prosecution to the
General Counsel. After it received the answers, the De-
partment of Health, Education, and Welfare formally
recommended criminal prosecution to the Justice Depart-
ment. Justice obtained an indictment, and subsequently
convictions. The case reached the Supreme Court upon
appeal of the convictions of several of the company’s
officers.

A-13

The officers in Kordel argued that use of the civil dis-
covery process to compel answers to interrogatories that
could be used to build the government’s case in a parallel
criminal proceeding “reflected such unfairness and want
of consideration for justice” as to require reversal. 397
U.S. at 11. The Supreme Court did not agree. The
Court noted that the government had not brought the
civil action “solely to obtain evidence for its criminal
prosecution,” id. at 11-12, or without notice to the de-
fendants that it contemplated a criminal action, id. at 12.
Moreover, the defendant was not unrepresented by coun-
sel, id., and had no reason to fear “prejudice from ad-
verse pretrial publicity or other unfair injury,” id. Nor
were there any other “special circumstances” suggesting
that the parallel proceedings were unconstitutional or
improper. Jd. In the absence of such “special circum-
stances” the Court recognized that prompt investigation
of both civil and criminal claims can be necessary to the
public interest. It said:

The public interest in protecting consumers through-
out the Nation from misbranded drugs requires
prompt action by the agency charged with responsi-
bility for administration of the federal food and drug
laws. But a rational decision whether to proceed
criminally against those responsible for the misbrand-
ing may have to await consideration of a fuller
record than that before the agency at the time of the
civil seizure of the offending products. It would
stultify enforcement of federal law to require a gov-
ernmental agency such as the FDA invariably to
choose either to forgo recommendation of a criminal
prosecution once it seeks civil relief, or to defer civil
Pet a pending the ultimate outcome of a crimi-
nal trial.

Id. at 11 (footnote omitted).

The Constitution, therefore, does not ordinarily re-
quire a stay of civil proceedings pending the outcome of

A-14

criminal proceedings. See Baxter v. Palmigiano, 425
U.S. 808 (1976); DeVita v. Sills, 422 F.2d 1172, 1181
(8d Cir. 1970). Nevertheless, a court may decide in its
discretion to stay civil proceedings, postpone civil dis-
covery, or impose protective orders and conditions “when
the interests of justice seem[J to require such action,
- sometimes at the request of the prosecution, * * * some-
times at the request of the defense[.]” United States v.
Kordel, supra, 397 U.S. at 12 n.27 (citations omitted) ;
see Horne Brothers, Inc. v. Laird, 463 F.2d 1268, 1271-
1272 (D.C. Cir. 1972). The court must make such deter-
minations in the light of the particular circumstances
of the case.

Other than where there is specific evidence of agency
bad faith or malicious governmental tactics, the strongest
case for deferring civil proceedings until after comple-
tion of criminal proceedings is where a party under in-
dictment for a serious offense is required to defend a
civil or administrative action involving the same matter.
The noncriminal proceeding, if not deferred, might under-
mine the party’s Fifth Amendment privilege against self-
incrimination, expand rights of criminal discovery beyond
the limits of Federal Rule of Criminal Procedure 16(b),
expose the basis of the defense to the prosecution in ad-
vance of criminal trial, or otherwise prejudice the case.”
If delay of the noncriminal proceeding would not seriously
injure the public interest, a court may be justified in
deferring it. See, e.g., United States v. Henry, 491 F.2d
702 (6th Cir. 1974); Texaco, Inc. v. Borda, 383 F.2d
607, 608-609 (8d Cir. 1967); Silver v. McCamey, 221

20In some cases the government seeks postponement of the
noncriminal proceeding, to prevent the criminal defendant
from broadening his rights of criminal] discovery against the
government. E.g., Campbell v. Eastland, 307 F.2d 478 (5th
Cir. 1962), cert. denied, 871 U.S. 955 (1968).

A-15

F.2d 873, 874-875 (D.C. Cir. 1955).7* Such cases have
frequently arisen in the tax field, following the leading
case of United States v. O’Connor, 118 F.Supp. 248
(D. Mass. 1953). Cf. Boren v. Tucker, 239 F.2d 767,
772-773 (9th Cir. 1956) (distinguishing IRS summons
enforcement before and after indictment). In some such
cases, however, the courts may adequately protect the
government and the private party by merely deferring
civil discovery or entering an appropriate protective or-
der. Gordon v. FDIC, 427 F.2d 578, 580-581 (D.C. Cir.
1970). The case at bar is a far weaker one for staying
the administrative investigation. No indictment has been
returned; no Fifth Amendment privilege is threatened;
Rule 16(b) has not come into effect; and the SEC sub-
poena does not require Dresser to reveal the basis for its
defense.

B. SEC Investigations

The case at bar concerns enforcement of the securities
laws of the United States, especially the Securities Act
of 1988 (’83 Act), 48 StTaT. 74, 15 U.S.C. § 77a et seq.
(1976), and the Securities Exchange Act of 1934 (’34
Act), 48 STaT. 881, 15 U.S.C. § 78a et seg. (1976).
These statutes explicitly empower the SEC to investigate
possible infractions of the securities laws with a view to

21 Silver v. McCamey, 221 F.2d 873 (D.C. Cir. 1955), held
that “due process is not observed if an accused person is sub-
jected, without his consent, to an administrative hearing on
a serious criminal charge that is pending against him.” /d.
at 874-875. As we have noted in text, cases decided since
Silver have established that, as a general matter, due process
is not infringed merely because an accused person is subjected,
without his consent, to an administrative hearing concerning
matters involved in a pending criminal proceeding. Never-
theless, as Silver recognized and more recent cases have
affirmed, such an administrative proceeding can in some cir-
cumstances prejudice the rights of a citizen or the govern-
ment. In such cases the agencies and courts may have a duty
to take appropriate corrective action.

A-16

both civil and criminal enforcement, and to transmit the
fruits of its investigations to Justice in the event of
potential criminal proceedings. The ’34 Act provides in
relevant part: “The Commission may, in its discretion,
make such investigations as it deems necessary to deter-
mine whether any person has violated, is violating, or is
about to violate any provision of this chapter[.]” Sec-
tion 21(a) of the 384 Act, 15 U.S.C. § 78u(a) (1976).
This investigative authority includes the power to ad-
minister oaths and affirmations, subpoena witnesses, take
evidence, and require production of any books, papers,
correspondence, memoranda, or other records which the
SEC deems relevant or material. Jd., Section 21(b), 15
U.S.C. § 78u(b). If it determines that a person “is
engaged or is about to engage in acts or practices con-
stituting a violation” of the Act, the SEC may bring an
action in federal district court to enjoin such acts or prac-
tices. Id., Section 21(d), 15 U.S.C. § 78u(d). Under the
same subsection of the ’34 Act the SEC may “transmit
such evidence as may be available concerning such acts
or practices * * * to the Attorney General, who may, in
his discretion, institute the necessary criminal proceed-
ings under this chapter.” Jd. The ’33 Act is to similar
effect. See Sections 19(b), 20(a), (b) of the ’33 Act,
15 U.S.C. §§ 77s(b), 77t(a), (b) (1976).

22 Sections 20(a) and 19(b) of the ’83 Act provide the basis
for the SEC’s investigative authority:

Whenever it shall appear to the Commission, either
upon complaint or otherwise, that the provisions of this
subchapter, or of any rule or regulation prescribed under
authority thereof, have been or are about to be violated,
it may, in its discretion, either require or permit such
person to file with it a statement in writing, under oath,
or otherwise, as to all the facts and circumstances con-
cerning the subject matter which it believes to be in the
public interest to investigate, and may investigate such
facts.

[Continued]

A-17

Effective enforcement of the securities laws requires
that the SEC and Justice be able to investigate possible
violations simultaneously. Dissemination of false or mis-
leading information by companies to members of the in-
vesting public may distort the efficient workings of the
securities markets and injure investors who rely on the
accuracy and completeness of the company’s public dis-
closures. If the SEC suspects that a company has violated
the securities laws, it must be able to respond quickly:
it must be able to obtain relevant information concerning
the alleged violation and to seek prompt judicial redress

22 [Continued]
Section 20(a) of the ’83 Act, 15 U.S.C. § 77t(a) (1976).

For the purpose of all investigations which, in the
opinion of the Commission, are necessary and proper for
the enforcement of this subchapter, any member of the
Commission or any officer or officers designated by it are
empowered to administer oaths and affirmations, subpena
witnesses, take evidence, and require the production of
any books, papers, or other documents which the Commis-
sion deems relevant or material to the inquiry. * * *

Id. $19(b), 15 U.S.C. § 77s(b). From § 20(b) derives the
authority to initiate civil injunctive actions and to transmit
evidence to Justice:

Whenever it shall appear to the Commission that any
person is engaged or about to engage in any acts or prac-
tices which constitute or will constitute a violation of the
provisions of this subchapter, or of any rule or regulation
prescribed under authority thereof, it may[,] in its dis-
cretion, bring an action in any district court of the United
States or United States court of any Territory. to enjoin
such acts or practices, and upon a proper showing a
permanent or temporary injunction or restraining order
shall be granted without bond. The Commission may
transmit such evidence as may be available concerning
such acts or practices to the Attorney General who may,
in hi. discretion, institute the necessary criminal pro-
ceedinzs under this subchapter. * * *

Id. § 20(b), 15 U.S.C. § 77t(b).

A-18

if necessary. Similarly, Justice must act quickly if it
suspects that the laws have been broken. Grand jury in-
vestigations take time, as do criminal prosecutions. If
Justice moves too slowly the statute of limitations may
run, witnesses may die or move away, memories may
fade, or enforcement resources may be diverted. See
United States v. Fields, 592 F.2d 688, 646 (2d Cir.
1978), cert. denied, 442 U.S. 917 (1979). The SEC can-
not always wait for Justice to complete the criminal
proceedings if it is to obtain the necessary prompt civil
remedy; neither can Justice always await the conclusion
of the civil proceeding without endangering its criminal
case. Thus we should not block parallel investigations
by these agencies in the absence of “special circumstances”
in which the nature of the proceedings demonstrably
prejudices substantial rights of the investigated party or
of the government. See United States v. Kordel, supra,
397 U.S. at 11-13.

III. APPLICABILITY OF
United States v. LaSalle Nat’l Bank

Dresser principally relies on an analogy to United
States v. LaSalle Nat’l Bank, 437 U.S. 297 (1978), in
which the Supreme Court said in dictum that the Internal
Revenue Service (IRS) may not use its summons au-
thority to investigate possible violations of the tax laws
after it has referred those violations to Justice for crimi-
nal prosecution. See id. at 311-313.% Dresser argues that

23 Dresser’s other arguments, in summary, are (1) that the
SEC subpoena breached an enforceable agreement of confi-
dentiality with Dresser; (2) Dresser was erroneously denied
certain discovery rights; and (3) enforcement of the-sub-
poena might violate Dresser’s attorney-client privilege. See
brief of respondent-appellant at 11-12. These arguments are
discussed in Part V infra.

2% This portion of LaSalle is properly characterized as
dictum, because the controversy concerned investigation of a

A-19

the SEC’s transmittal of Dresser’s file to Justice was
equivalent to a “referral” under LaSalle, and thus that
the SEC’s power to enforce investigative subpoenas
against Dresser in connection with that file lapsed at that
time. Alternatively, Dresser suggests that, even if trans-
mittal of the file was not analogous to a “referral” under
LaSalle, initiation of the grand jury investigation pre-
cluded subsequent enforcement of SEC investigative sub-
poenas into the same matters.

These two alternatives are vulnerable to the same objec-
tion: the LaSalle rule applies solely to the statutory
scheme of the Internal Revenue Code, in which the IRS’s
civil authority ceases for all practical purposes upon
referral of a taxpayer’s case to Justice; it does not
apply to the securities laws, in which the SEC’s civil
enforcement authority continues undiminished after Jus-
tice initiates a criminal investigation by the grand jury.”

taxpayer prior to referral to Justice. The Court held that a
taxpayer challenging an IRS summons prior to such referral)
bears the heavy burden of showing that the summons was
issued in “bad faith,” 437 U.S. at 316, which the Court inter-
preted as being “solely [for] criminal purposes.” Jd. The
Supreme Court has never decided a case concerning an IRS
sumrhons issued after referral to Justice but before indict-
ment. See note 25 infra.

2° The LaSalle rule—prohibiting enforcement of an IRS
summons after the IRS had referred the case to Justice for
criminal prosecution—derives from Donaldson v. United
States, 400 U.S. 517 (1971). In Donaldson the Court said:

We hold that under § 7602 [of the Internal Revenue
Code, 26 U.S.C. § 7602 (1970)] an internal revenue
summons may be issued in aid of an investigation if it is
issued in good faith and prior to a recommendation for
criminal prosecution.

Id. at 586. The Donaldson Court recognized that under prior
precedent the limitation on the IRS summons authority came
into effect only in “the situation of a pending criminal charge

A-20

The IRS summons authority derives from Section 7602
of the Internal Revenue Code, 26 U.S.C. § 7602 (1976).
Its authority is restricted to the terms and purposes of
that provision. The Supreme Court said in LaSalle:

In § 7602 Congress has bestowed upon the Service
the authority to summen production for four pur-
poses only: for “ascertaining the correctness of any
return, making a return where none has been made,
determining the liability of any person for any in-
ternal revenue tax... or collecting any such liabil-
ity.” Congress therefore intended the summons au-
thority to be used to aid the determination and col-

or, at most, of an investigation solely for criminal purposes.”
Id. at 583 (emphasis added). See Reisman v. Caplin, 375 U.S.
440, 449 (1964) (citing Boren v. Tucker, 289 F.2d 767, 772-
773 (9th Cir. 1956)). “Any other holding,” according to the
Donaldson Court, “would thwart and defeat the appropriate
investigatory powers that the Congress has placed in ‘the
Secretary or his delegate.’” 400 U.S. at 533. Nevertheless,
after a detailed discussion of the enforcement scheme of the
Internal Revenue Code, the Court reiterated the rule in modi-
fied form: instead of prohibiting enforcement of an IRS
summons if there is a pending criminal charge, the Court
prohibited such enforcement if there had been a referral to
Justice for criminal prosecution. Compare 400 U.S. at 5338
with id. at 586. Obviously, the difference between these two
formulations is substantial. The Court did not explicitly state
why it shifted from the one to the other, but the best available
explanation lies in its discussion of the statutory scheme,
which appears between the two conflicting statements of the
rule. In LaSalle Justice Blackmun, who also wrote the opinion
for the Court in Donaldson, explained that the decision in
Donaldson was not predicated on its analysis of precedent.
United States v. LaSalle Nat’l Bank, 487 U.S. 298, 307 (1978).
Rather, the decision relied on its review of the statutory
scheme. Jd. “The validity of the summonses depended ulti-
mately on whether they were among those authorized by
Congress,” the Justice said. Jd. This emphasizes that the rule
espoused in LaSalle and Donaldson is not based on principles
generally applicable to parallel civil and criminal proceedings,
but on limitations unique to the IRS.

A-21

lection of taxes. These purposes do not include the
goal of filing criminal charges against citizens. * * *-

United States v. LaSalle Nat’l Bank, supra, 487 U.S. at
316-317 n.18 (first ellipsis in original).

In the pre-referral stage of an IRS investigation the
civil and criminal elements of the investigation are inter-
twined. Jd. at 308-311. The same information is useful
in negotiating with the taxpayer, in suing in court for
additional taxes, or in deciding whether to recommend
criminal prosecution. Thus the IRS at that stage is
empowered to issue investigative summonses under Sec-
tion 7602, even though the fruits of such summonses may
be useful for the illegitimate purpose of “filing criminal
charges against citizens” as well as the legitimate pur-
poses of determining and collecting taxes.

However, upon referral of the case to Justice with a
recommendation for criminal prosecution, “the criminal
and civil aspects of a tax fraud case begin to diverge.”
Id. at 311. After that point the IRS loses its ability to
compromise the case, either criminally or civilly. All such
authority devolves upon Justice. Jd. at 312. Although
theoretically the IRS might use its summons power dur-
ing the pendency of the criminal proceeding to discover
information for the purpose of a future civil tax suit,
id. at 311-312, in practice the IRS holds all civil action
in abeyance until the criminal proceeding is completed.”*
Only then does the IRS turn its attention again to the
civil aspects of the case.

Thus, in the LaSalle Court’s view, the authorized pur-
poses for summonses under Section 7602 cease as a prac-
tical matter during the pendency of the criminal proceed-

26 See POLICIES OF THE IRS HANDBOOK, P-4-84, reprinted in
1 CCH INTERNAL REVENUE MANUAL 1805-1310 (1978) ; Office
of the Chief Counsel, IRS, Civil Considerations in Pending
Criminal Matters, Order No. 3050.1 (March 23, 1978).

A-22

ing. Because of this the Court was willing to impose a
“prophyiactic” rule flatly forbidding any use of the Sec-
tion 7602 authority once a case has been referred to
Justice for criminal prosecution. 7d. at 312. This rule
restricts the IRS within the confines of its statutory au-
thority and also “safeguards * * * two policy interests,”
id. at 313. These interests are to avoid broadening the
Justice Department’s right of criminal litigation discovery
and to avoid infringing on the role of the grand jury as
a principal tool of criminal accusation. Jd. at 312.

Dresser asks this court to extend the reasoning of
LaSalle to govern the conduct of the SEC under the
securities laws. But IRS investigative and enforcement
proceedings are not analogous to those of the SEC. The.
language of the securities laws and the nature of the
SEC’s civil enforcement responsibilities require that the
SEC retain full powers of investigation and civil enforce-
ment action, even after Justice has begun a criminal in-
vestigation into the same alleged violations.

The investigative provisions of the securities laws are
far broader than Section 7602 of the Internal Revenue
Code, as interpreted in LaSalle. See SEC v. Arthur
Young & Co., 584 F.2d 1018, 1022-1024 (D.C. Cir. 1978),
cert. denied, 489 U.S. 1071 (1979). SEC investigations
are not confined to “four purposes only.” Cf. United
States v. LaSalle Nat’l Bank, supra, 487 U.S. at 316 n.18.
Rather, the SEC may, “in its discretion, make such in-
vestigations as it deems necessary to determine whether
any person has violated, is violating, or is about to vio-
late any provision” of the ’34 Act, Section 21(a) of the
384 Act, 15 U.S.C. § 78u(a) (1976) (emphasis added).
Moreover, the SEC is “authorized in its discretion * * *
to investigate any facts, conditions, practices, or matters
which it may deem necessary or proper to aid in the en-
forcement of such provisions, in the prescribing of rules
and regulations under this chapter, or in securing in-

A-23

formation to serve as a basis for recommending further
legislation concerning matters to which this chapter re-
lates.” Jd. ‘emphasis added). See also Section 19(b) of
the ’83 Act, 15 U.S.C. § 77s(b) (1976). Given this broad
Statutory mandate, there is virtually no possibility that
in issuing this subpoena the SEC was acting ultra vires.
The investigation of Dresser—based as it was on the
staff’s conclusion that Dresser mmay have engaged in con-
duct seriously contravening the securities laws **“—falls
squarely within the Commission’s explicit investigatory
authority.** Unlike the Internal Revenue Code as inter-
preted in LaSalle, the securities laws offer no suggestion
that the scope of the SEC’s investigative authority shrinks
when a grand jury begins to investigate the same mat-
ters. Since the validity of summonses or subpoenas “de-
pend[s] ultimately on whether they were among those
authorized by Congress,” United States v. LaSalle Nat’l
Bank, supra, 487 U.S. at 307, we conclude that this
subpoena is enforceable under the rule of that case.”

27 See text at note 14 supra.

28 Dresser argued unsuccessfully in the District Court that
the SEC had exceeded its authority by issuing the subpoena
where there was no likelihood that a violation had been or
was about to be committed. 453 F.Supp. at 575. On appeal
Dresser makes this argument only obliquely in the form of
an objection to the denial of discovery. Brief of respondent-
appellant at 39-42. In any event, the argument is without
merit. Our task is merely to ensure that “the inquiry is with-
in the authority of the agency, the demand is not too indefinite
and the information sought is reasonably relevant.” SEC v.
Arthur Young & Co., 584 F.2d 1018, 1024 (D.C. Cir. 1978),
cert. denied, 489 U.S. 1071 (1979) (quoting United States v.
Morton Salt Co., 838 U.S. 632, 652-653 (1950) ) ; see also SEC
v. Howatt, 525 F.2d 226, 229 (ist Cir. 1975). We agree with
the District Court that “[t]his investigation has a legitimate
purpose and the inquiry is relevant to that purpose.” 453
F.Supp. at 576.

2° Cf. SEC v. OKC Corp., 474 F.Supp. 1031, 1088 (N.D. Tex.
1979) (SEC subpoena enforced although Department of

A-24

Fulfillment of the SEC’s civil enforcement responsi-
bilities requires this conclusion. Unlike the IRS, which
can postpone collection of taxes for the duration of payral-
lel criminal proceedings without seriously injuring the
public, the SEC must often act quickly, lest the false or
incomplete statements of corporations mislead investors
and infect the markets. Thus the Commission must be
able to investigate possible securities infractions and un-
dertake civil enforcement actions even after Justice has
begun a criminal investigation. For the SEC to stay its
hand might well defeat its purpose.

Dresser attempts to prevent enforcement of this sub-
poena by invoking the “policy interests” identified by the
LaSalle Court: to avoid broadening Justice’s right of
criminal] litigation discovery and to avoid infringing the
role of the grand jury as a principal tool of criminal
accusation. Brief of respondent-appellant at 21-23; sup-
plemental brief of appellant Dresser Industries, Inc. at
10-21; see United States v. LaSalle Nat’l Bank, supra,
437 U.S. at 312. We reject this argument for two rea-
sons.

First, Dresser disregards the context in which these
“policy interests” arose in LaSalle. Only after the Court
had determined that the IRS had no practical authorized
purpose for issuing a summons after referral of a case
to Justice did it direct its attention to these “policy in-
terests.” Then it did so solely to explain its imposition
of a “prophylactic” rule forbidding any use of the IRS
summons authority after referral to Justice, as opposed
to forbidding only such uses as are unrelated to the pur-
poses of Section 7602.%° The Court did not impose such

Energy had made criminal reference to Justice in related
matter).

80 See United States v. LaSalle Nat’l Bank, supra note 25,
437 U.S. at 311-312:

A-25

a “prophylactic” rule in any situation where it would
significantly restrict the legitimate investigative author-
ity of the IRS.“ In the case of an SEC investigation
there is no call for a “prophylactic rule,” and thus no
need to ponder the import of these “policy interests,”
because the SEC’s authority to issue the subpoena re-
mains undiminished after the start of a grand jury in-
vestigation.

Second, the “policy interests” of LaSalle have little
practical significance in this context. The first—to avoid
broadening Justice’s right to criminal discovery—is

We recognize, of course, that even upon recommendation
to the Justice Department, the civil and criminal] elements
do not separate completely. The Government does not sac-
rifice its interest in unpaid taxes just because a criminal
prosecution begins. Logically, then, the IRS could use its
summons authority under § 7602 to uncover information
about the tax liability created by a fraud regardless of the
status of the criminal case. But the rule forbidding such
is a prophylactic intended to safeguard the following
policy interests.

32 The LaSalle Court underscored, in a footnote, its belief
that a “prophylactic” rule need not be imposed in every cir-
cumstance presenting the potentiality for infringement of
the grand jury’s role or broadening of Justice’s right to
criminal discovery. The Court disapproved the position
adopted by the Third Circuit in United States v. Lafko, 520
F.2d 622, 625 (8d Cir. 1975), which it characterized as hold-
ing that the IRS summons authority must cease at the point
when the special agent recommends prosecution to the district
office, rather than at the point when the IRS recommends
prosecution to Justice. 437 U.S. at 313 n.15. The Supreme
Court admitted that “the potential for expanding the criminal
discovery rights of the Justice Department or for usurping
the role of the grand jury exists at the point of the recom-
mendation by the special agent.” Jd. But it called the possi-
bilities of abuse “remote,” id., and stated that they “do not
justify imposing an absolute ban on the use of the summons
before that point.” Jd.

A-26

flatly inapplicable, as Dresser admits.** The strict limi-
tations on discovery in criminal cases, embodied in Fed-
eral Rules of Criminal Procedure 15-17, do not take effect
until after a grand jury has returned an indictment.
Until then there is no danger that Justice might broaden
its discovery rights, because the subpoena power of the
grand jury is as broad as—perhaps broader than—that
of the SEC. Justice can procure from Dresser directly
whatever materials it might procure indirectly through
the SEC.* In fact, a party investigated under SEC rules
instead of grand jury procedures is accorded far greater
procedural protection, and has no cause to complain. See
17 C.F.R. §§ 203.6-203.7 (1979) .™

82 Supplemental! brief of appellant Dresser Industries, Inc.
at 19 n.16.

33 See Developments in the Law—Corporate Crime: Regulat-
ing Behavior Through Criminal Sanctions, 92 Harv. L. REV.
' 1227, 1812-18138 (1979). Obtaining the approval of the grand
jury itself is not a serious impediment to Justice’s efforts;
indeed, the common practice is for grand jury subpoenas to
_ be issued in blank, with the contents to be filled in by the
prosecutor. See In re Grand Jury Proceedings, 486 F.2d 85,
87 (3d Cir. 1973).

“17 C.F.R. §§ 203.6-2038.7 (1979) provide in relevant part:
§ 208.6 Transcripts.

* * * A person who has submitted documentary evi-
dence or testimony in a formal investigative proceeding
shall be entitled, upon written request, to procure a copy
of his documentary evidence or a transcript of his testi-
mony on payment of the appropriate fees: Provided,
however, That in a nonpublic formal investigative pro-
ceeding the Commission may for good cause deny such
request. In any event, any witness, upon proper identifi-
cation, shal] have the right to inspect the official tran-
script of the witness’ own testimony.

§ 208.7 Rights of witnesses.

‘
(a) Any person who is compelled or requested to fur-
nish documentary evidence or testimony at a formal

‘

A-27

In its brief Dresser has concentrated upon the second
“policy interest” identified in LaSalle: avoiding infringe-
ment upon the role of the grand jury. Dresser suggests
two ways in which the SEC civil investigation might in-
fringe the role of the grand jury. First, it argues that
enforcement of the SEC subpoena would undermine the
secrecy protections of the grand jury because the SEC
subpoena covers many or all of the Dresser documents
that have already been subpoenaed by the grand jury.™
In this argument Dresser misconceives the nature of the
secrecy protections of the grand jury.

Federal Rule of Criminal Procedure 6(e) provides in
relevant part:

investigative proceeding shall upon request be shown the
Commission’s order of investigation. * * *

(b) Any person compelled to appear, or who appears
by request or permission of the Commission, in person
at a formal investigative proceeding may be accompanied,
represented and advised by counsel * * *.

(c) The right to be accompanied, represented and ad-
vised by counsel shall mean the right of a person testify-
ing to have an attorney present with him during any
formal investigative proceeding and to have this attorney
(1) advise such person before, during and after the con-
clusion of such examination, (2) question such person
briefly at the conclusion of the examination to clarify
any of the answers such person has given, and (3) make
summary notes during such examination solely for the
use of such person.

(d) Unless otherwise ordered by the Commission, in
any public formal investigative proceeding, if the record
shall contain implications of wrongdoing by any person,
such person shall have the right to appear on the record ;
and in addition to the rights afforded other witnesses
hereby, he shall have a reasonable opportunity of cross-
examination and production of rebuttal testimony or
documentary evidence. * * *

35 Supplemental brief of appellant Dresser Industries, Inc.
at 18-17.

A-28

(e) Secrecy of Proceedings and Disclosure

(1) General rule. A grand juror, an interpreter,
a stenographer, an operator of a recording device, a
typist who transcribes recorded testimony, an at-
toney for the Government, or any person to whom
disclosure is made under paragraph (2) (A) (ii) of
this subdivision shall not disclose matters occurring
before the grand jury, except as otherwise provided
for in these rules. No obligation of secrecy may be
imposed on any person except in accordance with this
rule. * * *

We note that the Rule prohibits disclosure of “matters
occurring before the grand jury[.]” This serves to pro-
tect the identities of witnesses or jurors, the substance
of testimony, the strategy or direction of the investiga-
tion, the deliberations or questions of jurors, and the
like. It does not require, however, that a veil of secrecy
be drawn over all matters occurring in the world that
happen to be investigated by a grand jury. It is well
established that

36 The rationales for grand jury secrecy are well established:

“(1) To prevent the escape of those whose indictment
may be contemplated; (2) to insure the utmost freedom
to the grand jury in its deliberations, and to prevent
persons subject to indictment or their friends from im-
portuning the grand jurors; (8) to prevent subornation
of perjury or tampering with the witness who may testify
before [the] grand jury and later appear at the trial of
those indicted by it; (4) to encourage free and untram-
meled disclosures by persons who have information with
respect to the commission of crimes; (5) to protect in-
nocent accused wno is exonerated from disclosure of the
fact that he has been under investigation, and from the
expense of standing trial where there was no probability
of guilt.”

Douglas Oil Co. v. Petrol Stops Northwest, 441 U.S. 211, 219

n.10 (1979) (brackets in original) (quoting United States
v. Rose, 215 F.2d 617, 628-629 (8d Cir. 1954), approved in

A-29

when testimony or data is sought for its own sake—
for its intrinsic value in the furtherance of a law-
ful investigation—rather than to learn what took
place before the grand jury, it is not a valid defense
to disclosure that the same information was revealed
to a grand jury or that the same documents had
been, or were presently being, examined by a grand

jury. oe *
United States v. Interstate Dress Carriers, Inc., 280 F.2d
52, 54 (2d Cir. 1960).*7 Dresser’s documents at issue

United States v. Proctor & Gamble Co., 356 U.S. 677, 681
n.6 (1958)). See also Note, Administrative Agency Access
to Grand Jury Materials, 75 CoLuM. L. REV. 162, 166 (1975)
(suggesting a further rationale: “to prevent the grand jury
from being diverted from its primary concern—the investiga-
tion of criminal activity’). None of these rationales has any
application to an independent agency subpoena of corporate
documents. No witnesses or targets will be frightened from
testifying fully, no grand jurors will be threatened or sub-
orned, no target will be embarrassed—any more than it might
be embarrassed by any other SEC subpoena. Since the fact
that Dresser is the target of a grand jury investigation is
already public knowledge—as witness this case—there is no
danger of exposing the identi:y of an innocent grand jury
taryet.

87 Accord, United States v. Stanford, 589 F.2d 285, 290-291
(7th Cir. 1978), cert. denied, 440 U.S. 988 (1979); In re
Search Warrant for Second Floor Bedroom, —— F.Supp.
(D. R.I. No. 80-0018M-01, slip op. issued May 9, 1980), Jn re
Grand Jury Investigation of Ven-Fuel, 441 F.Supp. 1299,
1802-1803 (M.D. Fla. 1977) ; Brink v. DaLesio, 82 F.R.D. 664,
668-669 (D. Md. 1979) ; Michelin Tire Corp. v. United States,
453 F.Supp. 897, 898 (Cust. Ct. 1978) ; see also In re Grand
Jury Investigation (Lance), 610 F.2d 202, 217 (5th Cir.
1980) ; State of Illinois v. Sarbaugh, 552 F.2d 768, 771-772
(7th Cir.), cert. denied, 484 U.S. 889 (1977). Some courts
have adopted a broad interpretation of “matters occurring
before the grand jury” as documents that ‘“‘may tend to reveal
what transpired before the grand jury.” United States v.
Armco Steel Corp., 458 F.Supp. 784, 790 (W.D. Mo. 1978);

A-30

here were created for an independent corporate purpose,
not directly related to the prospect of a grand jury in-
vestigation. The SEC has subpoenaed them directly from
Dresser, without mention of the grand jury. They do
not reveal what has occurred before the grand jury; they
reveal only what has occurred in Dresser’s foreign opera-
tions. See United States v. Stanford, 589 F.2d 285, 291
(7th Cir. 1978), cert. denied, 440 U.S. 983 (1979). The
fact that a grand jury has subpoenaed documents con-
cerning a particular matter does not insulate that matter
from investigation in another forum.** In fact, if the
grand jury proceedings are genuinely secret, other agen-
cies and courts will not know the subject matter of the
grand jury investigation and thus will not be able to
determine whether their own inquiry would overlap that
of the grand jury.

In this case Dresser is obligated under the securities
laws to provide documents to the SEC in obedience to a
lawful subpoena. The existence of a grand jury proceed-
ing neither adds to nor detracts from Dresser’s rights
before the SEC. Whatever rights to secrecy or confiden-
tiality Dresser may have are the product solely of the
laws governing the SEC; they are unaffected by the
parallel grand jury proceeding.

The second way in which Dresser argues that enforce-
ment of this subpoena might infringe the role of the

accord, In re Grand Jury Investigation (Lance), supra, 610
F.2d at 216. Even under this test courts should permit dis-
closure of documents in the hands of private parties, inde
pendently identified and sought for a lawful and independent
purpose.

38 We recognize that in some circumstances the courts have
protected materials not technically within the range of Rule
6(e) where disclosure would jeopardize the effective. func-
tioning of the grand jury. See In re Search Warrant for
Second Floor Bedroom, supra note 37, ——— F.Supp. at ;
This case presents no such problem.

A-31

grand jury is that the SEC could interpret and selectively
disclose parts of the subpoenaed information to the grand
jury through Justice, thereby undermining the independ-
ence of the grand jury’s inquiry.” Of course, this argu-
ment is purely speculative since, as Dresser is well
aware, the SEC’s general policy is to grant Justice
continuing access to the entirety of a given investigative
file once the Commission formally grants access.*? As of
now the SEC has not received any confidential documents
from Dresser, and thus we have had no opportunity to
see how this policy operates in practice. It would be
altogether inappropriate for this court to presume that
the SEC will pre-select documents for release to Justice
in order to prejudice the grand jury.

In another sense Dresser’s complaint on this score has
little practical significance. No one would suggest that
the grand jurors, unassisted by accountants, lawyers, or
others schooled in the arcana of corporate financial ac-
counting, could sift through the masses of Dresser’s cor-
porate documents and arrive at a coherent picture of the
company’s foreign payments and disclosure practices. In
this area, as in many areas of great complexity, the
grand jurors are assisted—guided and influenced, in fact
—not only by the United States Attorneys assigned to
the investigation, but also by experts provided by the
federal regulatory agencies with experience in the par-
ticular subject areas. This expert assistance is permitted
under Rule 6(e), and it promotes the efficiency and ra-
tionality of the criminal investigative process. See In re
Perlin, 589 F.2d 260 (7th Cir. 1978) ; Robert Hawthorne,

89 Supplemental brief of appellant Dresser Industries, Inc.
at 17-18.

# See id. at 5 n.10.

41 See letter from James H. Schropp to this court dated
April 3, 1979.

A-32

Inc. v. Director of IRS, 406 F.Supp. 1098, 1106-1107
(E.D. Pa. 1975); Developments in the Law—Corporate
Crime: Regulating Corporate Behavior Through Crimi-
nal Sanctions, 92 Harv. L. REV. 1227, 1814-13815 (1979).
In this case two SEC agents have been assigned to Jus-
tice’s task force on transnational payments to assist in
the investigation of companies possibly involved in illegal
foreign payments.** There can be little doubt that the
grand jury’s deliberations will be influenced by the work
of these SEC agents. Any additional influence that might
arise as a result of enforcement of the SEC subpoena
and transmittal of documents to Justice thereafter is
likely to be inconsequential.**

Finally, we note that if Dresser is genuinely worried
that the SEC might disclose only those documents preju-
dicial to the company, it may provide the grand jury
with copies of all the documents it provides to the SEC,
thereby obviating the danger. Alternatively, if Dresser
obtains evidence that the SEC is in fact abusing its power
to transmit documents to Justice, and is thereby distort-
ing the grand jury’s perception of the case, Dresser may
apply to the courts at that time for appropriate relief.

We conclude that the danger that enforcement of this
subpoena might infringe the role of the grand jury is
too speculative and remote at this point to justify so
extreme an action as denying enforcement of this sub-
poena.“

42 See text following note 14 supra.

43 Dresser implicitly admits that it would be proper for the
SEC to conduct and complete a civil investigation, and then
to transmit all relevant materials to Justice for possible
criminal prosecution. See supplemental brief of appellant
Dresser Industries, Inc. at 22-24. Yet such a procedure would
create as severe a problem of grand jury infringement as
the procedure complained of in this case.

#4 Dresser seeks to minimize the effect an order denying
enforcement of this subpoena would have on the SEC’s ability

A-33

In essence, Dresser has launched this attack on the
parallel SEC and Justice proceedings in order to obtain
protection against the bare SEC proceeding, which it
fears will result in public disclosure of sensitive corpo-
rate documents. The prejudice Dresser claims it will
suffer from the pzarallel nature of the proceedings is
speculative and undefined—if indeed Dresser would suffer
any prejudice from it at all.** Any entitlement to confi-

to carry out its mandate by suggesting that the SEC could
continue its civil enforcement efforts through obtaining access
to the grand jury materials under Rule 6(e) (2) (C) (i), which
permits disclosure “when so directed by a court preliminarily
to or in connection with a judicial proceeding[.]” This dis-
regards the fact that some courts have held that the SEC must
demonstrate a “particularized need” for grand jury materials
in order to obtain access to them, e.g., In re Grand Jury In-
vestigation, 414 F.Supp. 74, 76 (S.D. N.Y. 1976), and that
administrative investigative proceedings may not be consid-
ered preliminary to or in connection with a judicial proceeding
for purposes of the Rule. See United States v. Bates, ——
F.2d —— (D.C. Cir. No. 79-1930, decided April 18, 1980)
(per curiam) (concerning a Federal Maritime Commission
investigation).

46 During ora] argument before the panel Dresser’s attorney
was asked what prejudice the company suffered from the
parallel proceedings. Transcript of oral argument at 49
(Dec. 11, 1978). He responded that Dresser was prejudiced
in two ways. First, he complained that “the SEC does not
have anywhere near the confidentiality protection that Rule
6(e) provides.” Of course, this complaint is properly ad-
dressed to Congress, which explicitly granted the SEC the
power to “publish” the results of its investigations. Section
21(a) of the ’34 Act, 15 U.S.C. § 78u(a) (1976). We do not
express any opinion on whether the SEC would he justified in
exercising the power to publish in this case; we merely note
that the Commission is not governed, and is not intended to
be governed, by Rule 6(e). Second, the attorney invoked
Dresser’s “right to a fair criminal investigation, including
the fact that the Rules of Discovery of the Federal Rules of
Criminal Procedure apply to it.” Transcript of oral argument
at 49 (Dec. 11, 1978). If he was referring to Rule 16(b),

A-34

dential treatment of its documents must arise under the
laws pertaining to the SEC; the fortuity of a parallel
grand jury investigation cannot expand Dresser’s rights
in this SEC enforcement action. Thus Dresser’s invoca-
tion of LaSalle can avail the company nothing.

IV. COOPERATION BETWEEN SEC AND JUSTICE

In its initial decision in this case a panel of this court
ruled that “the broad prophylactic rule enunciated in
LaSalle is inappropriate where the SEC and the Justice
Department are simultaneously pursuing civil and crimi-
nal investigations.” Slip opinion at 18. The panel there-
fore affirmed the District Court and ordered enforcement
of the SEC subpoena. Out of a concern that the SEC
subpoena might somehow “subvert the limitations of
criminal discovery,” id., however, the panel, with one
judge dissenting, modified the terms of the subpoena en-
forcement order. It required that “once the Justice De-
partment initiates criminal proceedings by means of a
grand jury, the SEC may not provide the Justice Depart-
ment with the fruits of the Commission’s civil discovery
gathered after the decision to prosecute.” Jd. at 22.*
We affirm the judgment of the District Court and reject
the panel’s modification.

then he was mistaken, for Rule 16(b) comes into play only
after indictment. In fact, the grand jury’s investigative pow-
ers are as broad as or broader than those of the SEC. Dresser
cannot claim to be prejudiced by the breadth of the SEC
investigative authority.

‘6 Under the panel’s terminology the decision to prosecute
and the beginning of “criminal discovery” occur at the time
when Justice begins to present its case to the grand jury.
See slip op. at 21. After indictment by the grand jury, when
genuine criminal discovery under Rule 16(b) begins, differ-
ent considerations would govern. See text and notes at notes
20-21 supra; supplemental brief of the SEC at 23-24; supple-
mental brief of appellant Dresser Industries, Inc. at 9 n.16.

A-35

First, we note that no party to this case had suggested
or requested a modification such as that imposed by the
panel majority, either in the District Court or in this
court.‘? In supplemental briefs submitted to the en banc
court both the SEC and Justice vigorously oppose the
modification, while Dresser’s support for it is lukewarm
at most. Dresser had argued that the SEC investigation
is flatly prohibited by the rule of LaSalle; the panel’s
modification, according to Dresser, “may have had a
similar effect” to that of LaSalle—“though not as assured
in its operation.” Supplemental brief of appellant Dresser
Ir dustries, Inc. at 30. Dresser characterized the panel’s
decision to “relax” the LaSalle rule as “unsound,” id. at
29, and described the motivating factor in the panel’s
decision—the supposed need to protect the “criminal dis-
covery process * * * of the grand jury,” slip opinion at
22—as “irrelevant to this litigation.” Supplemental brief
of appellant Dresser Industries, Inc. at 9 n.16. The reac-
tions of the parties, therefore, suggest that the panel’s
modification might serve more to impede securities law
enforcement than to protect the interests of Dresser.

Second, we note that there is no support for the panel’s
modification in either the relevant statutes or legislative
history. Both the ’33 Act and the ’84 Act—and other
statutes related to securities law enforcement as well **—
expressly authorize the SEC to “transmit such evidence
as may be available * * * to the Attorney General, who
may, in his discretion, institute the necessary criminal
proceedings under this subchapter.” Section 20(b) of the

47 Mr. Luter, appellant in No. 78-1705, has taken no position
regarding the panel’s modification of the District Court’s.
order.

48Investment Company Act of 1940, §42(e), 15 U.S.C.
§ 80a-41(e) (1976); Investment Company Act of 1940,
§ 209(e), 15 U.S.C. § 80b-9(e) (1976) ; Public Utility Holding
Company Act of 1935, § 18(f), 15 U.S.C. § 79r(f) (1976).

A-36

’83 Act, 15 U.S.C. § 77t(b) (1976); Section 21(d) of
the ’84 Act, 15 U.S.C. § 78u(d) (1976). The statutes
impose no limitation on when this transmittal may occur.
The parties have not cited any portions of the legislative
histories of these Acts relevant to this question, nor have
we found any. But the SEC and Justice find consider-
able support for their interpretation in the legislative
history of the Foreign Corrupt Practices Act of 1977,
91 STaT. 1494, Title I, 15 U.S.C. $$ 78a, 78m, 78dd-1,
78dd-2, 78ff (Supp. I 1977).

The Foreign Corrupt Practices Act outlaws corporate
bribery of foreign officials and associated inaccurate or
misleading financial recordkeeping. In passing the stat-
ute Congress recognized the role of the SEC in combat-
‘ting such practices under the ’83 and ’34 Acts, and
sought to “strengthen the Commission’s ability to enforce
compliance with the existing reguirements [sic] of the
securities laws[.]” S. Rep. No. 114, 95th Cong., 1st Sess.
12 (1977). Both the Senate and the House reports on
the bill acknowledged the SEC’s dual investigative role
in preparing cases for civil and criminal enforcement
actions. They also recognize the necessity of close co-
operation between the SEC and Justice in preparing such
cases. The Senate Committee said:

The committee expects that close cooperation will
develop between the SEC and the Justice Department
at the earliest stage of any investigation in order
to insure that the evidence needed for a criminal
proscution does not become stale. * * *

Id. at 12. It stated that it expected the SEC and Justice
to “work out” between themselves certain “arrangements
* * * on criminal matters” that would preserve the au-
thority of each within its jurisdiction. Jd. The House
Committee said:

Traditionally, there has been a close working rela-
tionship between the Justice Department and the

A-37

SEC. The Committee fully expects that this coop-
eration between the two agencies will continue with
respect to the enforcement of the provisions of this
bill.

H.R. Rep. No. 640, 95th Cong., lst Sess. 10 (1977).

Although the legislative history of the Foreign Corrupt
Practices Act is not directly probative of congressional
intent governing the ’33 and ’34 Acts, these statements
by the 95th Congress are nevertheless entitled to some
weight. The remarks in the committee reports concerning
the investigative practices of the SEC and Justice were
not intended to change, but to reaffirm, past practice.
This indicates that Congress understands and approves
of the “close working relationship” between the agencies
in their investigative capacities. Since such a “close work-
ing relationship” will govern the activities of the agen-
cies in enforcing the laws against questionable foreign
payments under the new statute, it would be impractical
for us to attempt to s

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_0373%3A1. Public record. Not legal advice.