When the SEC subpoenas journalists’ sources

By Felix Salmon
June 23, 2010
Henry Blodget, like all other right-thinking individuals, is appalled at the SEC recapitulating its David Einhorn let's-shoot-the-messenger errors with its subpoena of 37,000 documents from Sam Antar. But at the same time, Blodget doesn't seem concerned about the way in which the SEC has included emails to journalists among the documents it's asking for:

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Henry Blodget, like all other right-thinking individuals, is appalled at the SEC recapitulating its David Einhorn let’s-shoot-the-messenger errors with its subpoena of 37,000 documents from Sam Antar. But at the same time, Blodget doesn’t seem concerned about the way in which the SEC has included emails to journalists among the documents it’s asking for:

Importantly, however — and to the SEC’s credit — the SEC is NOT trying to obtain those emails by subpoenaing the reporters themselves. The SEC is instead attempting to retrieve the emails to journalists from the targets of the investigation themselves.

As Weiss points out, setting a precedent that communications with the press can be used as evidence in an investigation could have a “chilling effect” on people’s willingness to talk to the media. But the fact that the SEC is not asking the journalists themselves to give up their sources is an important and welcome factor here.

Anonymous sources certainly rely on journalists to protect their identities. Therefore, if it became established precedent for the SEC and other regulators to immediately subpoena journalists and get a full list of their sources and notes at the beginning of an investigation, communications with the press would go into a deep freeze (to society’s detriment).

But when the point of the investigation is to determine if someone has been spreading lies about a company, asking the target of an investigation to fork over any emails that he or she sent to journalists seems perfectly reasonable. The journalists have not been asked to give up any sources in this case. And if one IS trying to spread lies about a company, sending emails to journalists is probably a good place to start — so it’s hard to argue that these communications should be granted some sort of privilege.

Blodget seems to think that the only good reason to keep journalistic communications from the SEC is to prevent journalists from having to give up their anonymous sources. But in fact there are lots of other good reasons to keep journalistic communications some kind of privileged status, as the SEC itself recognizes:

Freedom of the press is of vital importance to the mission of the Securities and Exchange Commission. Effective journalism complements the Commission’s efforts to ensure that investors receive the full and fair disclosure that the law requires, and that they deserve. Diligent reporting is an essential means of bringing securities law violations to light and ultimately helps to deter illegal conduct…

Subpoenas should be negotiated with counsel for the member of the news media to narrowly tailor the request for only essential information. In negotiations with counsel, the staff should attempt to accommodate the interests of the Commission in the information with the interests of the media.

Subpoenas should, wherever possible, be directed at material information regarding a limited subject matter, should cover a reasonably limited period of time, and should avoid requiring production of a large volume of unpublished material. They should give reasonable and timely notice of their demand for documents.

In the absence of special circumstances, subpoenas to members of the news media should be limited to the verification of published information and to surrounding circumstances relating to the accuracy of published information.

Sam Antar, responding to Blodget, says (in an on-the-record email which the SEC is welcome to subpoena) that “the SEC’s subpoenaing of sources for their communications with journalists is no different than the government subpoenaing client communications with their attorneys as a way to breach the attorney-client privilege.” And he has a good point.

If the SEC were to ask Antar for emails he sent to his lawyer, he could simply refuse, on the grounds that such communications are protected. And the SEC itself is happy to admit that communications with journalists deserve some measure of protection, and that the SEC shouldn’t simply go on massive fishing expeditions in such circumstances: instead, it should be very specific about exactly what information it wants.

The Sam Antar subpoena, however, is obviously a fishing expedition: it even includes documents from Antar’s recent divorce. And it nullifies a huge amount of the welcome sentiment behind the SEC’s policy on asking for information from journalists, if the SEC can ignore all those guidelines when asking for information from journalists’ sources.

The SEC should encourage communication between sources and the press, using the press as a kind of adjunct enforcement mechanism. Instead, this kind of activity is prone to making sources even quieter. And that doesn’t serve the SEC at all.

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