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W.J. ABBOTT & CO. v. SEC

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA


December 6, 1967

W.J. Abbott & Company, Inc.
v.
Securities And Exchange Commission; Securities And Exchange Commission v. W.J. Abbott & Company, Inc.

Rosenberg, District Judge.

The opinion of the court was delivered by: ROSENBERG

ROSENBERG, District Judge:

The motion to quash subpoena presented by W.J. Abbott & Company (hereinafter referred to as Abbott Company), plaintiff at Miscellaneous No. 4370 has been consolidated with the application by the Securities and Exchange Commission (hereinafter referred to as the S.E.C.), for the enforcement of subpoena at Miscellaneous No. 4391 for the reason that both matters concern the same set of facts and relate to the same subpoena.

 On June 1, 1967 the S.E.C., pursuant to the provisions of § 20(a) of the Securities Act, 15 U.S.C. § 77t(a) and § 21(a) of the Exchange Act, 15 U.S.C. § 78u(a), and in order to determine whether certain persons had violated or were about to violate the Securities Act or the Exchange Act, issued an order directing a private investigation entitled In the Matter of W.J. Abbott & Company, Inc., William J. Abbott and Frank J. Rolek and designating officers to take testimony.

 Acting pursuant to this order of investigation, a subpoena duces tecum was served on Abbott Company on July 17, 1967, directing it to appear on August 1, 1967, to testify, and to produce "All the books and records of W.J. Abbott & Co. relating to managed accounts involving the purchase and sales of commodities and commodity futures, including but not limited to the following: general ledgers, journals, cancelled checks, check stubs, monthly bank statements, trading account agreements, trading authorizations, correspondence and memoranda, in your possession in or under your control from the period of January 1, 1965 to date."

 On August 1, 1967, a representative of Abbott Company appeared, but refused, upon advice of counsel, to produce the books and records which had been subpoenaed. The Abbott Company plaintiff moved to quash the subpoena; the S.E.C. moved to enforce its subpoena by application to the District Court.

 Abbott Company contends: The S.E.C. has no statutory jurisdiction over the Abbott Company and has no statutory right to examine its books and records; the corporation, which does business from its offices on McKnight Road in Pittsburgh, Pennsylvania, is not engaged in the business of selling securities, and has not engaged in the sale of securities, during the period from January 1, 1965 to date; the corporation is engaged in the business of trading commodity futures, the regulation of which is vested in the Department of Agriculture of the United States and the Commodity Exchange Authority of the Department of Agriculture; the corporation is not a registered broker-dealer and is not in any other capacity registered with the S.E.C., nor is it by law obligated to be so registered; and, the subpoena is invalid unless and until the S.E.C. makes a prima facie showing that the corporation's business activities fall within the purview of the Securities and Exchange Commission Acts of 1933 or 1934.

 The question raised, then, is whether or not the regulation, pursuant to statute, of commodity brokers by the Department of Agriculture precludes another agency, the Securities and Exchange Commission, from pursuing investigations into possible violations of the statutes and areas over which Congress has given the S.E.C. regulatory administrative control. The question must be answered in the negative.

 Congress has empowered the Securities and Exchange Commission to "provide full and fair disclosure of the character of securities sold in interstate and foreign commerce and through the mails, and to prevent fraud in the sale thereof, and for other purposes." Preamble Securities Act of 1933, 15 U.S.C. § 77a et seq.

 In carrying out the purposes of this statute, Congress gave the S.E.C. wide investigatory powers so that the Commission could determine the areas of its own jurisdiction. Section 20(a) of the Securities Act, 15 U.S.C. § 77t(a) *fn1" and Section 21(a) of the Exchange Act, 15 U.S.C. § 78u(a) *fn2" provide the Commission with its power to investigate possible violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. The subpoena powers of the Securities and Exchange Commission are provided in Section 19(b) of the Securities Act, 15 U.S.C. § 77s(b) *fn3" and Section 21(b) of the Exchange Act, 15 U.S.C. § 78u(b). *fn4"

 In support of its argument that the Commodity Exchange Authority, a division of the Department of Agriculture, and the Department of Justice, share exclusive jurisdiction over commodity brokers, and preclude investigation by the S.E.C., Abbott Company relies upon § 6 of the Commodity Exchange Act, 7 U.S.C. § 1 et seq. and regulations thereunder, specifically 17 CFR 1.31 and 1.37. *fn5"

 The Commodity Exchange Act and the regulations promulgated under the Act by the Secretary of Agriculture make the books and records of the commodity broker available for inspection by representatives of the Department of Agriculture and the Department of Justice without subpoena. While Abbott Company offers the exclusion of other agency jurisdiction because of the grant of jurisdiction by Congress in the Commodity Exchange Authority as a division of the Department of Agriculture and Department of Justice, its contention becomes only an argument because it is nowhere contained as a provision in any Act of Congress. Nor has counsel for Abbott Company presented any judicial authority to support the contention that the provisions relied upon are intended to give exclusive authority for the supervision of the commodity broker to the Departments of Agriculture and Justice. The hearings before the Committee of Agriculture of the United States Congress (House of Representatives 24th Congress, 1st Sess. H.R. 3009, page 100) indicate that the purpose of the section was to allow to representatives of the Agriculture and Justice Departments easy access to the books and records of brokers, but not exclusive access to the books and records of brokers.

 There are numerous examples of businesses which are regulated by two or more regulatory agencies. For example, airlines are, in general, regulated by the Civil Aeronautics Board. However, the public sales of securities by airline companies are regulated by the S.E.C. Therefore, while the S.E.C. does not regularly inspect the books and records of commodity brokers as it does in the case of directly regulated entities such as registered brokers or industrial companies, it does have the right, under the Act which it administers, to reach by investigative subpoena the books and records of the commodity broker when that broker's activities indicate possible violations of Federal securities laws.

 Registration as a broker-dealer with the S.E.C. is not a prerequisite for violating securities laws. There are numerous instances where courts have enforced investigative subpoenas issued by the S.E.C. where neither the subpoenas or the investigations were directed against brokers-dealers. Securities and Exchange Commission v. Vacuum Can Company, 157 F.2d 530, C.A. 3, 1946; Consolidated Mines v. Securities and Exchange Commission, 97 F.2d 704, C.A. 9, 1946. Commodity brokers, too, have been involved in cases dealing with possible violations of the Federal securities laws. Securities and Exchange Commission v. Commodity Brokerage Company, Inc. et al., Civil Action 67-105 (W.D. Pa.); Securities and Exchange Commission v. Wickham, 12 F. Supp. 245 (D.C. Minn., 1935).

  For the reasons stated, it must be concluded that the regulation of commodity brokers by the Department of Agriculture does not exclude any other agency, in this instance the S.E.C. from exercising investigative powers granted to it by Congress in areas and activities specifically designated to such other agency by statutory authority.

 The application for enforcement of the subpoena will be granted and the motion to quash the subpoena will be denied.


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