Bloomberg News

SEC Chairman Rebukes Staff for Seeking Reporter Notes (Update2)

February 27, 2006

U.S. Securities and Exchange Commission Chairman Christopher Cox issued a rare public rebuke to his enforcement staff, saying he wasn't consulted before it took the ``highly unusual'' step of subpoenaing two reporters for details of their communications with sources.

Cox said in a statement today that he first learned from weekend news reports that SEC investigators had subpoenaed two Dow Jones & Co. journalists. One of them, Herb Greenberg, wrote in a Feb. 24 column that the agency asked for the records as part of a probe into research firm Gradient Analytics Inc., which he described as a source.

``The sensitive issues that such a subpoena raises are of sufficient importance that they should, and will be, considered and decided by the commission before this matter proceeds further,'' Cox said in the statement.

The comments mark the first time that Cox, 53, has publicly chastised the enforcement division, overseen by Linda Thomsen, 51, since he succeeded William Donaldson last year. Cox, a former Republican Congressman, said in an interview today that he continues to support Thomsen and isn't ``backing down one whit'' on aggressively policing securities markets.

Thomsen, an ex-federal prosecutor appointed by Donaldson last year, didn't return a call seeking comment.


Government investigations of journalists and their confidential sources have galvanized Washington in the past two years. New York Times reporter Judith Miller spent 85 days in prison last year for refusing to testify during a probe into the 2003 leak of covert CIA operative Valerie Plame's name. Miller was freed after agreeing to cooperate and her testimony helped lead to charges against I. Lewis ``Scooter'' Libby, then chief of staff for Vice President Dick Cheney.

Cox said he plans to hold a meeting of the commissioners as soon as this week to consider whether and when it's appropriate to subpoena journalists. He also said he expects to discuss when the enforcement staff should tell commissioners and the agency's general counsel of unusual developments during the course of investigations. The staff doesn't ordinarily seek approval from the agency's commissioners before sending subpoenas.

Given the volume of SEC probes, ``it would be completely impracticable for the professional staff to consult step-by-step with the commissioners or even senior officials in Washington in most of these case,'' he said. ``But there needs to be a sense of when something is not normal.''


Greenberg, who writes for Dow Jones's, wrote in a column that the SEC had decided for now that it won't enforce the subpoena seeking documents from him and Carol Remond, a writer for Dow Jones Newswires. He said the SEC might seek records in the future.

``The bottom line is that I'm no longer being asked to provide the SEC all of my `unpublished' communications, including e-mails and phone records, between me and people and organizations I've quoted -- and at least one I've never quoted,'' Greenberg wrote.

The SEC won't say what it's investigating. Greenberg has written that the inquiry arises from ``publicity surrounding Inc. (OSTK:US)''

Subpoena Inc., which operates financial Web sites, was served Feb. 7 with a SEC subpoena concerning the agency's investigation of Arizona stock research firm Gradient Analytics, Jordan Goldstein, general counsel for, said in an interview late today.

``They've asked for a number of things,'' including ``communications between journalists and sources,'' Goldstein said. ``We told them we are objecting that, and they've indicated they're not going to compel production of the communications,'' he said, declining further comment. said in an online article today that the subpoenas were served on the company and its co-founder, major shareholder and columnist James Cramer. The subpoenas stem from the SEC's investigation of possible collusion between Gradient and short sellers, said.

Gradient vice president and co-founder Donn Vickrey didn't immediately return a call to Bloomberg News made after business hours. President Patrick Byrne has contended that journalists are involved in an effort by Gradient, the research firm, to push down the share price of his company, which sells excess retail inventory over the Internet.

Rare Option

``As a longstanding practice, the SEC subpoenas journalists only when it's absolutely necessary and after careful thought and consideration,'' SEC spokesman John Nester said in a phone interview yesterday. Nester didn't immediately return calls to Bloomberg News made after business hours today.

Earlier today, Nester declined to comment on Cox's statement, and declined to say whether the SEC would continue to seek documents from Greenberg and Remond.

Greenberg, who has criticized in his columns, said Scottsdale, Arizona-based Gradient is a valued source.

``I focus on companies with aggressive accounting,'' he said in an interview yesterday. ``Eighty percent of what I do is to help investors avoid losing money and not get blindsided.'' in August filed a lawsuit against Gradient, hedge fund Rocker Partners LLP and its managing partner, David Rocker, alleging the two companies conspired to issue research aimed at pushing down share price to benefit short-sellers.


Short sellers are investors who sell borrowed shares with the hope of profiting from a decline by buying them back later at a lower price. Gradient and Rocker deny the allegations.

Shares of Salt Lake City-based have fallen 56 percent in the past year. They closed this week at $23.40.

Bloomberg LP, the parent of Bloomberg News, competes with Dow Jones in selling financial news and information.

To contact the reporter on this story: Otis Bilodeau in Washington at

To contact the editor responsible for this story: Erik Schatzker at

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Companies Mentioned

  • OSTK
    ( Inc)
    • $24.62 USD
    • -0.50
    • -2.03%
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