A federal district court in New York rejected arguments from the Committee on Ways and Means of the US House of Representatives and Brian Sutter, the former staff director of the Committee’s Health Subcommittee, that they did not have to comply with investigative subpoenas of the Securities and Exchange Commission for documents and testimony.
The SEC had served subpoenas on respondents in connection with an investigation related to the possible leak of non-public information regarding unexpected Medicare payment rates determined by the US Department of Health and Human Services announced on April 1, 2013. Just prior to the time of HHS’ official announcement, a research firm advised 200 clients of expectations that appeared to presage this unexpected outcome. According to the court, the SEC claimed it possessed information and emails that Mr. Sutter may have been the source of information used by the research firm as the basis for its advice. However, the respondents claimed they were excused from compliance with the SEC’s subpoenas because of principles of “sovereign immunity” and the Speech or Debate Clause of the US Constitution, among other reasons.
Respondents said they could not be compelled to comply with the SEC’s investigative subpoenas under the doctrine of sovereign immunity because the federal government and its agencies cannot be sued unless they voluntarily consent.
The court rejected this argument, saying this doctrine has traditionally barred only private suits against the federal government and not suits by one branch of government against another. In any case, said the court, Congress waived any sovereign immunity defense against the SEC in an insider trading investigation when it enacted into law in 2012 a provision stating that members of Congress and Congressional employees are not exempt from securities laws’ insider trading prohibitions.
The court also rejected respondents’ claim that the SEC’s investigative subpoena was prohibited under the US Constitution’s Speech or Debate clause. This clause states that “for any Speech or Debate in either House, [Senators or Representatives] ... shall not be questioned in any other Place.”
The court acknowledged that the Speech or Debate clause was implicated by the SEC’s subpoena. However, the court said the clause only precluded inquiry that fell within the “sphere of legitimate legislative activity” and a large portion of the SEC’s subpoena addressed matters outside such activity, including personal communications. Accordingly, the court ordered respondents to comply with the SEC subpoenas but endeavored to somewhat limit their scope.