SEC, House Panel Debate Need to Respond to Subpoena

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By Stephen Joyce

June 13 — – A federal appeals court heard arguments June 13 regarding whether a congressional committee must respond to an SEC subpoena seeking documents in an insider-trading investigation ( SEC v. House Ways and Means Comm., 2d Cir., No. 15-3818, oral argument, 6/13/16 ). .

In a court proceeding before the U.S. Court of Appeals for the Second Circuit, committee lawyer William Pittard argued that the federal sovereign immunity doctrine permits the committee to disregard SEC document requests.

Requiring the committee and former aide Brian Sutter, to comply with the subpoenas would be “unprecedented and dangerous,” Pittard said.

Jeffrey Berger, SEC senior litigation counsel, argued that the agency's investigative authority under 1934 Securities Exchange Act Section 21(a) gives it the power to subpoena congressional documents. “Sovereign immunity is not an obstacle,” he said.

Resolution of the controversy could test whether the Stop Trading on Congressional Knowledge—STOCK—Act is enforceable. The 2102 law bans members of Congress bans members of Congress from trading on confidential information gleaned through the course of their public service.

SEC Probe

The SEC issued the subpoenas in an investigation centered on trading in Humana Inc. stock. If the subpoenas are enforced, SEC lawyers will be permitted to question committee staff about whether information concerning a change in a U.S. health-care policy was leaked.

The change resulted in a spike in shares of Humana and other health-insurance companies shortly before the government announced that payments to insurers would be increased, rather than reduced

Judge Jon Newman asked Pittard why the committee hasn't responded to the subpoenas if Congress's intent in approving the STOCK Act was to prohibit lawmakers and their staffs from insider trading. Pittard said he couldn't speak for members of Congress or their legislative decisions.

Presiding Judge Richard Wesley questioned Pittard about how far immunity relief extends to Sutter, especially in instances where Sutter's actions had nothing to do with his official duties. “It depends,” Pittard said.

While Pittard's answers didn't seem to satisfy the judges on several occasions Pittard stood his ground, saying the House committee is even unwilling to create a document log or release informal research notes to the SEC.

`Empty Shell.'

Berger said the SEC's investigative authority extends to Congress. He further argued that the STOCK Act is an “empty shell” if it doesn't allow the SEC to investigate possible insider trading violations in the Congress.

More broadly, sometimes an SEC investigation will require the agency to contact an investment firm and sometimes it may need to contact Congress, Berger said.

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To contact the editor responsible for this story: Phyllis Diamond at

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