480 F.2d 1047 (2nd Cir. 1973), 832-835, S.E.C. v. Brigadoon Scotch Distributing Co.

Docket Nº:832-835, 73-1395, 73-1444 to 73-1446.
Citation:480 F.2d 1047
Party Name:SECURITIES AND EXCHANGE COMMISSION, Petitioner-Appellee and Cross-Appellant, v. BRIGADOON SCOTCH DISTRIBUTING CO., et al., Respondents-Appellants and Cross-Appellees.
Case Date:June 07, 1973
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 1047

480 F.2d 1047 (2nd Cir. 1973)

SECURITIES AND EXCHANGE COMMISSION, Petitioner-Appellee and Cross-Appellant,

v.

BRIGADOON SCOTCH DISTRIBUTING CO., et al., Respondents-Appellants and Cross-Appellees.

Nos. 832-835, 73-1395, 73-1444 to 73-1446.

United States Court of Appeals, Second Circuit.

June 7, 1973

Argued March 30, 1973.

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[Copyrighted Material Omitted]

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Walter P. North, Acting Gen. Counsel, S. E. C., Washington, D. C. (Michael A. Macchiaroli, Atty., S. E. C., Washington, D. C., on the brief), for applicant-appellee and cross-appellant.

Bradley R. Brewer, New York City, for respondent-appellant Brigadoon Scotch Distributing Co.

Arthur J. Homans, New York City, for respondent-appellant Milbank Trading Co., Inc.

Irving A. Logue, Miller & Seeger, New York City, for respondent-appellant Leith-Moor Scotch Whiskey Co.

Before LUMBARD and FRIENDLY, Circuit Judges, and THOMSEN, District Judge. [*]

LUMBARD, Circuit Judge:

On January 26, 1972, the Securities and Exchange Commission ("SEC") applied to the district court for the Southern District of New York for an order pursuant to section 22(b) of the Securities Act of 1933, 15 U.S.C. §§ 77v(b), and section 21(c) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u(c), directing compliance with subpoenas duces tecum issued to Brigadoon Scotch Distributing Co. ("Brigadoon"), Milbank Trading Co., Inc. ("Milbank"), and Leith-Moor Scotch Whisky Co. ("Leith-Moor"). The district court in two memorandum decisions and an order, which was entered on February 14, 1973, granted enforcement of the subpoenas in part and denied enforcement in part. Brigadoon, Milbank, Leith-Moor and the Commission have each appealed.

On March 13, 1973, a panel of this court ordered these appeals consolidated, granted a stay of the district court's order, and ordered the appeals to be heard on an expedited basis. For the reasons stated below, we affirm so much of the district court order as enforces the Commission's subpoenas, and reverse so much of the order as denies enforcement of the subpoenas.

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I

Under section 20(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77t(a), and section 21(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78u(a), the SEC is empowered to conduct investigations into possible violations of the federal securities laws. Pursuant to these provisions the Commission on February 4, 1971 issued an "Order Directing Private Investigation and Designating Officers to Take Testimony (the "Order"). 1 The Order provided for the investigation of certain named persons, together with Brigadoon and Milbank, or "any other persons," to ascertain whether they had engaged or were about to engage in any acts or practices in connection with the offer and sale of whisky warehouse receipts in violation of sections 5(a), 5(c) and 17(a) of the Securities Act, 15 U.S.C. §§ 77e(a), 77e(c) & 77q(a), and sections 10(b) and 15(a) of the Exchange Act, 15 U.S.C. §§ 78j(b) & § 78 o(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5 thereunder. The Order also provided, in accordance with section 19(b) of the Securities Act, 15 U.S.C. § 77s(b), and section 21(b) of the Exchange Act, 15 U.S.C. § 78u(b), for the appointment of several members of the Commission staff as officers of the Commission with the power, among other things, to subpoena witnesses and require the production of any books, papers, correspondence, memoranda or other records deemed relevant and material to the investigation.

On April 14, 1971, pursuant to the Commission's Order a subpoena duces tecum was issued to Brigadoon Scotch Distributors, Ltd., 2 which required Brigadoon to produce at the Commission's New York Regional Office the following eight categories of documents:

"1. A list of all persons with their addresses who have purchased whisky warehouse receipts or whisky from Brigadoon Scotch Distributors, Ltd. or with the aid of Brigadoon Scotch Distributors, Ltd.

2. A list of all persons with their addresses who have been employed by Brigadoon Scotch Distributors, Ltd. on either a salary or commission basis for the purpose of selling whisky warehouse receipts or whisky.

3. Copies of all literature sent by Brigadoon Scotch Distributors, Ltd. or its agents to prospective purchasers of whisky warehouse receipts or whisky.

4. Copies of all advertisements placed in the news media by Brigadoon Scotch Distributors, Ltd. or its agents in connection with the sale of whisky warehouse receipts or whisky.

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5. A list of all parents, subsidiaries or affiliates of Brigadoon Scotch Distributors, Ltd.

6. A list of all persons with their addresses who are or have ever been officers, directors, partners or shareholders of Brigadoon Scotch Distributors, Ltd.

7. Copies of any financial statements, income statements or balance sheets reflecting Brigadoon Scotch Distributors, Ltd.'s financial condition for any period from January 1, 1968.

8. A list of all banks, factors, lending institutions or other corporations or persons which Brigadoon Scotch Distributors, Ltd. has used from January 1, 1968 to date in connection with the financing of the business of buying or selling whisky warehouse receipts or whisky, including but not limited to, places where funds have been deposited, loans obtained and transfer facilities used."

On April 14, 1971, a virtually identical subpoena was issued to Milbank Trading Company, Inc.; and on July 9, 1971, a subpoena, similar in all respects but one, was sent to Leith-Moor Scotch Whisky Co. The single difference in the Leith-Moor subpoena consisted of the omission of a request for the information contained in item (7) of the Brigadoon and Milbank subpoenas. Thus item (7) of the Leith-Moor subpoena corresponded to item (8) of the Brigadoon and Milbank subpoenas. The three companies responded with varying amounts of information, but none complied fully with the subpoenas. As a result, the Commission commenced these proceedings to compel compliance.

Judge Tenney, relying on our decision in SEC v. Wall Street Transcript Corp., 422 F.2d 1371 (2d Cir.), cert. denied, 398 U.S. 958, 90 S.Ct. 2170, 26 L.Ed.2d 542 (1970), held in a memorandum decision dated September 5, 1972, that the information called for in items (1) through (6) of the three subpoenas should be produced. As to items (7) and (8) of the Brigadoon and Milbank subpoenas and item (7) of the Leith-Moor subpoena, Judge Tenney found that the information required would be irrelevant unless the Commission could demonstrate that respondents below were selling securities. To avoid "an unnecessary imposition on Respondents" that "possibly would damage their business" he denied enforcement of this portion of the subpoenas with leave to the SEC to renew its application upon a showing that the documents involved were in fact securities subject to regulation by the Commission. In addition, to lessen the impact on respondents' business which might result from inquiries by the Commission directed to respondents' customers and employees based upon the information supplied in items (1) and (2) of the subpoenas, Judge Tenney also provided that appropriate protective provisions should be entered in the final order.

Motions to reargue were made by the three respondents below and the SEC. Judge Tenney, in a memorandum decision dated January 10, 1973, granted the motions and adhered to his prior decision. The final Order, of February 14, 1973, required inter alia, that the Commission "recite to each and every business entity and person from whom documents, information, or testimony is requested" a statement to the effect that the SEC is conducting an investigation under the "authority and supervision" of the district court to determine whether the interests in whisky sold by appellants are securities; that the Commission has made no determination yet as to coverage under the federal securities laws; that no charges are pending; and that appellants contend that they sell "commodities" not subject to SEC regulation.

On this appeal, Brigadoon, Milbank, and Leith-Moor assert that the district court relied improperly on the Wall Street Transcript case, supra, and that they should not be forced to produce the information called for in items (1) through (6) of the subpoenas. The SEC contends that, to the contrary, the subpoenas

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should have been enforced in their entirety, including items (7) and (8) of the Brigadoon and Milbank subpoenas and item (7) of the Leith-Moor subpoena, and that the Commission's investigators should not be required to recite the information contained in the protective provisions contained in the order...

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