MA Schapiro & Co. v. Securities and Exchange Com'n

• Decision Date: 24 February 1972
• Docket Number: Civ. A. No. 2243-70.
• Citation: 339 F. Supp. 467
• Parties: M. A. SCHAPIRO & CO., Inc., Plaintiff, v. SECURITIES AND EXCHANGE COMMISSION et al., Defendants.
• Court: U.S. District Court — District of Columbia

339 F. Supp. 467

M. A. SCHAPIRO & CO., Inc., Plaintiff, v. SECURITIES AND EXCHANGE COMMISSION et al., Defendants.

Civ. A. No. 2243-70.

United States District Court, District of Columbia.

February 24, 1972.

George D. Reycraft, New York City, for plaintiff.

Thomas A. Flannery, U. S. Atty., Philip A. Loomis, Jr., Gen. Counsel, Richard E. Nathan, Special Counsel, and Michael A. Macchiaroli, Washington, D. C., for defendants.

OPINION

AUBREY E. ROBINSON, District Judge.

This suit was brought under the public information section of the Administrative Procedure Act, 5 U.S.C. § 552, popularly known as the Freedom of Information Act of 1966. M. A. Schapiro & Co., Inc., plaintiff, is an underwriter and broker-dealer in bank securities. Plaintiff is suing for an order and judgment enjoining the defendants from withholding, and ordering the defendants to produce, the Securities and Exchange Commission's Staff Study on the off-board trading problem raised by the New York Stock Exchange's original Rule 394; and all transcripts made and documents received by the Securities and Exchange Commission in the course of that investigation. Plaintiffs filed a Motion to Shorten the Time for Defendant to Answer, And For a Preliminary Injunction. Both parties have briefed the questions of law and fact, and this Court is now prepared to resolve them on the merits.

The defendants contend that the information requested by plaintiff should not be disclosed. They note that the staff study examined national securities exchanges and was performed by the agency that is responsible for the regulation and supervision of those "financial institutions." 5 U.S.C. § 552(b) (8). If the study, related transcripts, and documents submitted in the course of investigation are indiscriminately disclosed, it could harm the integrity and security of financial institutions. Further, defendants allege that this information is exempt from disclosure having been gathered in the course of an investigation compiling facts relating to the enforcement of laws. 5 U.S.C. § 552(b) (7). Moreover, the defendants assert that they must protect the privacy and the competitive position of citizens who offer information to assist government policy makers. Thus, they note the exception to disclosure under the Act for "trade secrets" and commercial or financial information obtained from a person and privileged or confidential. 5 U.S.C. § 552(b) (4). Defendants also allege that this information is exempt from disclosure under 5 U.S.C. §§ 552(b) (3) and (5). These sections relate to information specifically exempted from disclosure by statute, and inter-agency or intra-agency memoranda or letters that would not be available by law to a party other than an agency in litigation with the agency.

The purpose of the Freedom of Information Act is to increase citizen's access to government records. It was not intended that in the process of closing loopholes in the requirement that the public not be denied legitimate information, that new loopholes were created. In Bristol-Myers Co. v. Federal Trade Commission, 138 U.S.App.D.C. 22, 424 F.2d 935 (D.C.Cir.), cert. denied, 400 U.S. 824, 91 S.Ct. 46, 27 L.Ed.2d 52 (1970), it was held that specific exemption of records from disclosure pursuant to the Freedom of Information Act were to be narrowly construed. Where the request for information seeks material outside the needed category, the Court should view the records and determine the discoverability of each record. Further, in order to hold the material exempt from disclosure under this Act, the Court must examine each document and explain the specific statutory justification for withholding that particular item.

In compliance with this direction from the Court of Appeals, this Court issued an Order requiring the production of the requested documents for in camera inspection to determine whether they actually fell within the exceptions of the Freedom of Information Act. One week after the signing of the Order for Production of Documents For In Camera Inspection, and approximately six years after its creation, the Securities and Exchange Commission released for public consumption, the entire unexpurgated Staff Study that is the subject of this suit. This disclosure by the Securities and Exchange Commission makes the questions of exemption, as they relate to the Staff Study, moot. This action on the part of the defendants, however, is an indication on their part as to the merits of their initial assertions.

Upon in camera inspection of the submitted documents, it is the conclusion of this Court that, for the following reasons, all of the requested documents must be made available to the plaintiff.

First, these documents are not specifically exempted from disclosure by any statute. The Securities and Exchange Commission alleges that 18 U.S. C. § 1905 prevents the disclosure of this information. That statute, however, does not prevent disclosure of information that is authorized to be disclosed under other laws. There is nothing in § 1905 of Title 18 that prevents the operation of the Freedom of Information Act. Moreover, the provision for documents specifically exempted from disclosure by statute 5 U.S.C. § 552(b) (3) relates to those other laws that restrict public access to specific government records. It does not, as defendants allege, relate to a statute that generally prohibits all disclosures of confidential information.

Second, the documents involved are not inter-agency or intra-agency memoranda or letters. 5 U.S.C. § 552(b) (5). Thus, they are not encompassed by this exception. None of these documents express an exchange of ideas between agencies or their respective staff members. There is no administrative policy-making process exhibited in any of the transcripts or documents presented. This exception,

"does not authorize an agency to throw a protective blanket over all information by casting it in the form of an internal memorandum. Purely factual reports and scientific studies cannot be cloaked in secrecy by an exemption designed to protect only `those internal working papers in which opinions are expressed and policies formulated and recommended.'"

Bristol-Myers Co. v. FTC, supra, 424 F.2d at 939.

Third, although arguably these documents are investigatory files compiled for law enforcement purposes, the agency has not proffered any facts that would show it contemplated within the reasonably near future, a law enforcement proceeding based upon the materials sought. Six (6) years have elapsed and these documents have not been, nor is it alleged that they will be, the basis for either a criminal or civil action against anyone. In fact, the Securities and Exchange Commission's willingness to make public any transcript or document that the person testifying said would be permissible indicates that the Securities and Exchange Commission was not concerned with providing information to possible defendants that was gathered by this investigation. Thus, the exception for such information does not apply in this case. Bristol-Myers Co. v....