S.E.C. v. McGoff

• Decision Date: 22 June 1981
• Docket Number: No. 79-2484,79-2484
• Citation: 647 F.2d 185
• Parties: , Fed. Sec. L. Rep. P 97,852, 6 Media L. Rep. 2425 SECURITIES AND EXCHANGE COMMISSION v. John P. McGOFF, Global Communications Corp., Sacramento Publishing Co., Appellants.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 185

647 F.2d 185

207 U.S.App.D.C. 360, Fed. Sec. L. Rep. P 97,852,

6 Media L. Rep. 2425

SECURITIES AND EXCHANGE COMMISSION v. John P. McGOFF, Global Communications Corp., Sacramento Publishing Co., Appellants.

No. 79-2484.

United States Court of Appeals District of Columbia Circuit.

Argued Nov. 17, 1980.

Decided Feb. 3, 1981.

Certiorari Denied June 22, 1981.

See 101 S.Ct. 3114.

Raymond G. Larroca, Washington, D. C., with whom Herbert J. Miller, Jr. and James E. Rocap, III, Washington, D. C., were on brief, for appellants.

Paul Gonson, Sol., SEC, Washington, D. C., with whom Jacob H. Stillman, Associate Gen. Counsel and Rosalind C. Cohen, Asst. Gen. Counsel, SEC, Washington, D. C., were on brief, for appellee.

Before EDWARDS and GINSBURG, Circuit Judges, and JOYCE HENS GREEN ^*, U. S. District Judge for the District of Columbia.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge:

During the summer of 1979 the Securities and Exchange Commission instituted a formal, non-public investigation centering on John P. McGoff, a controversial newspaper publisher, columnist, and lecturer. Subpoenas duces tecum were served on McGoff and two companies wholly owned by him. The purpose of the investigation was to determine whether McGoff or corporations he served as helmsman violated anti-fraud, reporting, beneficial ownership, and proxy provisions of the Federal securities laws. Securities Exchange Act §§ 10(b), 13(a), 13(d), and 14(a), 15 U.S.C. §§ 78j(b), 78m(a), 78m(d), 78n(a) (1976 & Supp. III 1979). When McGoff and his companies refused to comply with the subpoenas the SEC initiated this enforcement proceeding.

In response to McGoff's objection that the subpoenas were unduly burdensome in that they sought records of fourteen separate entities, the SEC narrowed its demand to exclude references to "any affiliates, parents or subsidiaries" of companies named in the subpoenas. In response to McGoff's concerns that the information sought could include documentation regarding editorial decisions or the sources for or writing of news stories, District Judge Gerhard A. Gesell excluded from the reach of the subpoenas "any document which solely relates to editorial policy or solely relates to information obtained as part of the process of gathering news for possible publication." Joint Appendix (J.A.) at 220.

The SEC demands were made pursuant to marketplace regulatory laws of general applicability. Beyond question, those laws serve a substantial public interest. They are not aimed at the press as distinguished from other commercial ventures. They do not directly regulate the content, time, place, or manner of expression, nor do they directly regulate political associations. We conclude that, in the order requiring compliance with the SEC's subpoenas, the district court appropriately accommodated McGoff's interests as a publisher. We further conclude that, on the facts before us, McGoff and his wholly owned companies were not entitled to launch an inquiry, through discovery, into the SEC's motives for instituting this investigation. We therefore affirm.

I. Background

John McGoff is an "(a)ctive and vocal conservative" and has been a "(f) ierce critic of (Carter) administration" attitudes and policies. Brief for Appellants at 7. In particular, he has criticized insistently United States policy regarding South Africa. While McGoff believes that South Africa's racial policies are a "tragic mistake," he opposes attempts to limit United States investment in that country.

McGoff is the self-made helmsman of an extensive newspaper publishing and printing network. He is the founder, president, and sole owner of Global Communications Corp. (formerly named Star Newspaper Co.), one of the companies that resists enforcement of an SEC subpoena in this case. Global, in turn, wholly owns Sacramento Publishing Co., the second company challenging an SEC subpoena before this court. Sacramento and Global are apparently predominantly holding companies.

Of pivotal concern to the SEC, McGoff is the founder, president, a director, and a shareholder of Panax Corp., a publicly registered corporation whose common stock is traded over the counter. Panax owned and operated sixty-five daily and weekly newspapers in seven states at the time the SEC began its investigation in 1979. As of December 31, 1978, Global owned approximately 23% of Panax's outstanding common stock, Sacramento owned about 17% of the stock, and McGoff held directly about 1%. McGoff, therefore, had a beneficial interest in about 40% of Panax's stock.

Under section 13(d) of the Securities Exchange Act, 15 U.S.C. § 78m(d) (1976 & Supp. III 1979), beneficial owners of more than 5% of the shares of a publicly held corporation must disclose, inter alia, the number of shares owned, the source of funds used to purchase the shares, and any arrangements or understandings relating to the shares. McGoff, Global, and Sacramento have filed several § 13(d) statements relating to their Panax holdings. In the spring of 1979, however, the SEC became suspicious that they had not disclosed all of the required information.

One source of the SEC's suspicion was the Erasmus Commission Report, a report completed in December 1978 by a judicial commission that the government of South Africa appointed to inquire into alleged irregularities in that nation's former Department of Information. The Erasmus Report stated that McGoff had received more than $11.3 million from the South African government to attempt to purchase the Washington Star (one of the two major dailies published in the District of Columbia) and a controlling interest in the United Press International and Television Network (a London-based television news service). According to the Erasmus Report, the government of South Africa agreed to finance these purchases because it wanted McGoff to secure an influential media position from which he could stimulate favorable attitudes towards South Africa.

McGoff purchased an interest in the London news service for about $1.3 million. However, his negotiations for the purchase of the Washington Star were unsuccessful. Instead, again according to the Erasmus Report, McGoff used $6 million of the funds supplied by South Africa to purchase a newspaper in the capital of California, the Sacramento Union. The remaining $4 million, McGoff told South African officials, were used to operate the Union.

The SEC, however, entertained a different theory about McGoff's disposition of the South African funds. Shortly after McGoff received $10 million from South Africa for the anticipated purchase of the Washington Star, McGoff, Global (then Star Newspaper), and Sacramento began to acquire large quantities of Panax stock. ¹ The SEC suspected that South African government money was used for the "massive acquisitions" of Panax stock and that McGoff, Global, and Sacramento had failed to identify this source of funds in their § 13(d) statements. The SEC further suspected that McGoff might have made an undisclosed agreement with South African officials to use Panax newspapers to promote South African interests.

The Erasmus Report also aroused SEC suspicions about another possible violation of disclosure requirements. The report revealed that South Africa had asked McGoff to return the $11.3 million advanced to him. In 1978, after McGoff had agreed to repay at least some of the money, he obtained $1 million in cash from Panax in exchange for eleven Texas newspapers (the "Suburbia" newspapers) then owned by McGoff, Global, and Sacramento. The SEC suspected that appropriate disclosures respecting this transaction might not have been made and that the transaction might have been unfairly structured to benefit McGoff.

The SEC commenced a private investigation and served the subpoenas duces tecum that prompted this litigation. The subpoenas requested McGoff, Global, and Sacramento to produce "any and all documents concerning or involving directly or indirectly" the following categories of information:

(1) any transactions, contacts, or dealings with the South African government or its political subdivisions; South African officials, political candidates, or political parties; and seven named South African political figures,

(2) any receipts or disbursements of South African funds,

(3) any transactions or proposed transactions involving the securities of Panax, Global, Sacramento, Star Newspaper Co. (the predecessor of Global), or the Suburbia newspapers,

(4) any transactions with the Union Bank of Switzerland or Thesaurus Continental Securities Corp. (the Swiss entities that allegedly funneled the South African funds to McGoff),

(5) the incorporation and capitalization of Global and its predecessor Star,

(6) any contacts or dealings concerning the proposed acquisition of the Washington Star, and

(7) any contacts or dealings concerning the acquisition or disposition of the Sacramento Union or Suburbia newspapers.

In addition, the SEC demanded the financial records of Global, Star, and Sacramento. The time frame for all requests ran from January 1, 1971, to the date of the demand. ²

McGoff, Global, and Sacramento refused to comply with the SEC subpoenas, asserting that they were overbroad and offensive to First Amendment interests. The SEC thereupon initiated this enforcement proceeding. Shortly after institution of the proceeding, McGoff, Global, and Sacramento sought to determine, through interrogatories and a document production request, whether the SEC investigation was part of a coordinated government effort to harass McGoff. The SEC moved for a protective order prohibiting discovery.

After a hearing Judge Gesell entered orders disallowing discovery and directing McGoff, Global, and Sacramento to comply with the subpoenas. Judge Gesell modified the SEC's demands, however, by permitting McGoff and his companies to withhold documentation relating solely to ...