Opinion
No. 1628.
August 31, 1938. Rehearing Denied October 7, 1938.
Appeal from the District Court of the United States for the Western District of Oklahoma; Edgar S. Vaught, Judge.
Proceeding under the Securities Act of 1933, 48 Stat. 74, as amended by the Act of June 6, 1934, 48 Stat. 881, 905, 15 U.S.C.A. § 77a et seq., by the Securities and Exchange Commission against the Verser-Clay Company and the Mid-Continent Crude Oil Purchasing Company to ascertain whether the companies had violated or were about to violate provisions of the Securities Act of 1933. From an order requiring E.C. Clay, as president of the Verser-Clay Company and of the Mid-Continent Crude Oil Purchasing Company, to appear before the examiner of the Securities and Exchange Commission and produce certain books, papers and documents relating to the business conducted by the two companies, the two companies and E.C. Clay appeal.
Affirmed.
Securities and Exchange Commission at a regular session in Washington, D.C., on July 26, 1935, entered an order which recited that it had received information that the provisions of Section 5 and Section 17, Title 1 of the Securities Act of 1933, as amended, 15 U.S.C.A. §§ 77e, 77q, and its rules and regulations thereunder had been and were about to be violated by Verser-Clay Company and Mid-Continent Crude Oil Purchasing Company, their officers, agents and employes, and it being the opinion of the Commission that the investigation ordered to be made is necessary and proper for the enforcement of said provisions of said act and said rules and regulations and is in the public interest:
"It is ordered that an investigation be made to determine whether Verser-Clay Company and Mid-Continent Crude Oil Purchasing Company, their officers, agents, or employes, have violated or are about to violate said provisions of said Act and/or said rules and regulations."
For the purpose of investigation the order named an officer of the Commission to conduct a hearing, take testimony, for that purpose subpœna witnesses, compel their attendance, require the production of books, papers, correspondence, records deemed relevant and material to the inquiry, administer oaths and affirmations, and perform all other duties in connection therewith authorized by law at such times and places as he might determine, — all as provided in the Securities Act, 15 U.S.C.A. § 77a et seq.
The officer went to Oklahoma City in November, 1935, and on the 18th day of that month issued two subpœnas duces tecum, one directed to each of the named companies, requiring them to produce before him at the hearing to begin the next day in the United States District Court room in the United States Post Office Building in that city their books, papers, documents, correspondence, checks, bank statements, from January 1, 1934, to August 31, 1935, disclosing financial transactions relating to the purchase and sale of all royalties, working interests and other oil securities, including free working interests, overriding royalty interests, and oil payments, receipt and disbursement of funds during that time and specimen copies of all literature and advertising material relating to the offer and sale of all royalties and specifically of valuation reports relating thereto which had been sent by said companies to dealers, brokers, and the general public through the mails and by means or instruments of transportation or communication in interstate commerce during that time and particularly as to certain named persons and companies, and the purchase of certain named properties, amounts paid therefor, and the sale of certain other properties and the amounts received therefor during that time. The books, records, letters, advertisements and other documents called for were described in the subpœnas with greater particularity than is stated above. The subpœnas also commanded the companies to appear and testify.
Mr. E.C. Clay appeared before the examiner at the place and time stated in the subpœnas. He was accompanied by his counsel, Mr. Roddie. He was sworn as a witness on behalf of the Commission. He testified that he was the president of both companies named. Mr. Roddie thereupon addressed the examiner thus:
"I have advised my clients that any testimony they give at this hearing, either in the form of books or records or oral testimony, may be used against them in any prosecution which may now be pending against them or which may hereafter be pending against them, unless they claim their constitutional right in the giving of such evidence, and on the next question that may be propounded I will expect Mr. Clay to claim that right, and we do so, of course, respectfully, but we do it firmly."
Mr. Clay was shown the subpœna directed to the Verser-Clay Company and asked whether it was served on him. He answered:
"Yes, sir; this is the subpœna, but I have not produced the records called for in the subpœna."
The examiner asked him:
"Why not?
"A. On advice of my counsel, I am claiming my constitutional rights.
"Q. In other words, you are refusing to produce those books and records upon the ground that the testimony or the documentary evidence which you would be compelled to produce under that subpœna may tend to incriminate you or subject you to penalty or forfeiture?
"A. Yes, sir."
He made the same answers in reference to the subpœna directed to Mid-Continent Crude Oil Purchasing Company.
After further discussion this occurred:
"Examiner Mather: I will call the attention of counsel for the government to the provisions of Section 22 of the Securities Act of 1933 as amended [ 15 U.S.C.A. § 77v], and advise you in my opinion it is the privilege of this Examiner to order this witness to testify, but in the absence of a direct suggestion from counsel for the government, I do not propose to jeopardize the rights of the Commission and the rights of the United States Government at this time by issuing such an order. * * *
"The Examiner will not excuse this witness in view of the possibility of him attending other pending actions. I will adjourn this hearing for approximately two weeks, and until Monday the second day of December at 10 o'clock in this court room."
Nothing further occurred until December 17, 1935. On that day the Commission filed in the office of the clerk of the United States District Court at Oklahoma City its application to the District Judge for an order to enforce compliance by Mr. Clay to the commands of the two subpœnas.
The Commission's verified application charged that the Verser-Clay Company is an Oklahoma corporation; that the Mid-Continent Crude Oil Purchasing Company is an Arizona corporation; that the two companies are affiliates under common control and management; that the Verser-Clay Company is operating as a trading and brokerage company in the sale of securities as defined in Section 2(1) of the Securities Act of 1933, as amended, 15 U.S.C.A. § 77b (1); that the Mid-Continent Crude Oil Purchasing Company is a holding and operating company in which title is vested to properties in which the Verser-Clay Company has sold and is now selling to the public fractional undivided interests in oil and gas properties by using the United States mails and means and instruments of transportation in interstate commerce without having filed with the Securities and Exchange Commission a registration statement pursuant to the requirements of the Securities Act of 1933; that said two companies in offering such securities for sale made false and misleading representations to purchasers of said fractional undivided interests in properties and of the monies that had and would accrue to purchasers of such interests. There are other charges in the application tending to show prohibited uses of the mails and facilities and means in interstate commerce.
On said December 17th an order to show cause was entered by the District Judge against E.C. Clay and the two companies directing them to show cause, if any they had, before the District Judge of said court on the 20th day of December, 1935, why an order should not be entered requiring them to comply with the commands of said subpœnas. A certified copy of the order to show cause was served on the three respondents by the United States Marshal. Mr. Clay, president of the two corporations, filed a response and an amended response to the Commission's application to enforce the commands of the subpœnas.
On final hearing of the controversy the District Court on April 7, 1937,
"Adjudged, Ordered and Decreed, That E.C. Clay, as President of the Verser-Clay Company, and President of the Mid-Continent Crude Oil Purchasing Company, appear before * * * the examiner of the Securities and Exchange Commission * * * on the 17th day of April, 1937, and at any adjournments thereof as determined by said official of the Securities and Exchange Commission, at Room 709 of the United States Post Office Building, Oklahoma City, Oklahoma, there to produce the following books, papers, and documents relating to the business carried on and conducted by the said Verser-Clay Company as follows:
(The documents and records to be produced of the Verser-Clay Company are here set forth, being the same as those set forth in the subpœna directed to it.)
"And the following books, papers, and documents relating to the business carried on and conducted by the said Mid-Continent Crude Oil Purchasing Company, as follows:"
(The documents and records of that company to be produced are set forth, being the same as those set forth in the subpœna directed to it.)
"Jurisdiction of this Cause is retained for the purpose of giving full effect to this Decree and for the purpose of making such other and further orders and decrees or taking such other action, if any, as may become necessary or appropriate to carry out and enforce this Decree."
It will be observed that the court's order requires only the production of the named books, records and documents. It does not require respondent Clay to give testimony. Jurisdiction of the controversy was expressly retained, doubtless for the purpose of passing on other questions that may arise as the hearing progresses.
Reuben M. Roddie, of Oklahoma City, Okla. (A.L. Beckett, of Oklahoma City, Okla., on the brief), for Verser-Clay Company et al.
H.S. French, of Tulsa, Okla., and O. John Rogge, of Chicago, Ill., Solicitors (Allen E. Throop, Gen. Counsel, and Thomas J. Lynch, Asst. Gen. Counsel, both of Washington, D.C., O.H. Allred, of Fort Worth, Tex., R.F. Milwee, Jr., of Little Rock, Ark., Solicitors, and Herbert B. Cohn, of counsel, on the brief), for Securities and Exchange Commission.
Before LEWIS, BRATTON, and WILLIAMS, Circuit Judges.
Clay says he relies on the Fifth Article of Amendment to the United States Constitution, U.S.C.A. Const. Amend. 5:
"No person * * * shall be compelled in any criminal case to be a witness against himself."
He further says that he and Mr. Verser have been indicted in the United States Court for the District of Columbia for criminal offenses described in said Sections 5 and 17 of the Securities Act, and that the object of the Commission and its officers is to obtain from him proof of their guilt and use it against them in that prosecution or use it in finding other indictments, and that the production of the books alone might disclose such incriminating facts and he believes they would. But Clay can not claim the constitutional privilege for acts of the corporations. Wilson v. United States, 221 U.S. 361, 31 S.Ct. 538, 55 L.Ed. 771, Ann. Cas. 1912d 558, wherein the subject is exhaustively discussed; Wheeler v. United States, 226 U.S. 478, 33 S.Ct. 158, 57 L. Ed. 309; Grant v. United States, 227 U.S. 74, 33 S.Ct. 190, 57 L.Ed. 423; Brown v. United States, 276 U.S. 134, 48 S.Ct. 288, 72 L.Ed. 500; Essgee Co. v. United States, 262 U.S. 151, 43 S.Ct. 514, 67 L.Ed. 917. It may be true that there is something in the corporate books and documents that shows personal acts of Clay that tend to incriminate him. If so, he had an opportunity to present them to the District Judge and ask that he be protected in his constitutional right, but he sought no protection in that respect. It is not claimed that when he was on the witness stand any question was asked the answer to which would tend to incriminate him. Clearly the privilege asserted by him does not extend to the two corporations. When the matter was taken to the District Court Clay did not make any effort to show that any of the documents and records called for were wholly immaterial for any purpose in the inquiry and that the proceeding was no more than a fishing expedition wherein practically all its records in business transactions were called for. In our opinion the order appealed from was a proper one on the facts disclosed and should be affirmed. It is so ordered.