The opinion of the court was delivered by: DAVIS
JOHN MORGAN DAVIS, District Judge.
Under authority of Section 167 of the Bankruptcy Act, 11 U.S.C. § 567, the trustees in this Chapter X proceeding were granted leave to investigate the "Acts, conduct, property, liabilities and financial condition of the debtors", to include an examination of the "directors and officers of the debtors."
Subsequently, the Securities and Exchange Commission (S.E.C.) was authorized to participate and assist in the aforementioned investigation.
We have since been apprised by the petitioner that the S.E.C. has apparently been conducting a separate and independent investigation of the affairs of the debtors, under the provisions of Section 20(a) of the Securities Act of 1933,
and Section 21(b) of the Securities Exchange Act of 1934.
This investigation has included an examination of the petitioner (by his own assertion) pursuant to "continuing subpoena" by the S.E.C. We shall assume, arguendo, that the petitioner may be recalled by the S.E.C. either concurrent with, or subsequent to the trustees' Section 167 investigation. It is possible that the petitioner may be subjected to criminal prosecution if the S.E.C. investigation would indicate that such action is appropriate.
At this time, however, there has been no criminal proceeding instituted against the petitioner; this opinion will be predicated upon that premise.
After receiving written notice of depositions by the Chapter X trustees (with participation by the S.E.C.),
the petitioner, Morise Thal, president of the debtor corporations,
filed the motion for a protective order presently before the Court,
seeking a stay of any further attempts to depose or otherwise examine him by the trustees, during the pendency of the S.E.C. investigation.
Preliminarily, the petitioner is contesting the authority of the S.E.C. to participate in an investigation ostensibly conducted under Section 167 of the Bankruptcy Act. It is true that the Act does not expressly authorize S.E.C. participation in the Section 167 investigation. However, this section clearly states that the trustees * * *
may, subject to the approval of the judge, employ such person or persons as the judge may deem necessary for the purpose of assisting the trustee in performing the duties imposed upon him under this chapter.
Having just obtained the requisite leave of court, In re Flamingo Hotel Co., 81 F.2d 749 (7th Cir. 1936), the only question remaining is whether this statute contemplates the "employment" (albeit without compensation) of the S.E.C. for the purpose, inter alia of assisting in a Section 167 investigation.
Under Section 208 the Bankruptcy Act, 11 U.S.C. § 608, the S.E.C. if approved by the Court, is given the right to proceed as a party in interest "with the right to be heard on all matters * * *." In In re Otis & Co., 104 F. Supp. 201, 203 (N.D.Ohio, 1952), it was observed that Congress, by authorizing participation by the S.E.C. in a Chapter X reorganization:
* * * intended mutual assistance between the court and the Commission and that to insure harmony the grants of power alluded to above [Sections 172 and 208 participation] were intended to subject the Securities and Exchange Commission to the orders of a reorganization court * * *.
If the court is statutorily vested with discretion 1), to authorize participation generally, under Section 208, and 2), to limit S.E.C. participation specifically when deemed necessary, In re Otis, supra, and cases cited therein, it follows that the Court has sufficient authority to permit S.E.C. participation for particular aspects of a Chapter X reorganization, such as the Section 167 investigation at issue. In so holding, however, we wish to reemphasize that participation is discretionary with the Court In re Morris White Properties Corp., 21 F. Supp. 635 (E.D.N.Y.1937). Since abuse of that discretion has not been established or even alleged, participation by the S.E.C. in the contemplated Section 167 investigation will be permitted.
Turning to the merits of petitioner's motion, we agree that it is quite possible that the scope of the S.E.C. investigation may, to some extent, encompass the same subject matter as the Section 167 investigation conducted under the auspices of the trustees. Both statutes essentially contemplate to some extent, the devolution of fraudulent practices by persons in control and operation of the debtor corporation.