ADMINISTRATIVE INVESTIGATIONS: PRESERVING A REASONABLE BALANCE BETWEEN AGENCY POWERS AND TARGET RIGHTS

• Author: JOHN W. BAGBY
• DOI: http://doi.org/10.1111/j.1744-1714.1985.tb00478.x
• Published date: 01 September 1985
• Date: 01 September 1985

ADMINISTRATIVE INVESTIGATIONS: PRESERVING A

REASONABLE BALANCE BETWEEN AGENCY

POWERS AND TARGET RIGHTS

*JOHN

W.

BAGBY

Efficient regulation requires that agencies be afforded reasonable op-

portunities to investigate regulated activities. Evidence-gathering ac-

tivities

are

effected by the agencies’ powers to require reporting and to

make special investigations of events

or

occurrences. However, the fourth

amendment requires that searches and seizures must be conducted

reasonably in all investigatory activities.’ Apart from the discovery

devices available to litigants

after

suit

is

filed, the primary precomplaint

investigative devices are reports, inspections and subpoenas. The sub-

poena power allows an agency to cause witnesses

to

testify before

it.

Ad-

ditionally, a subpoena duces tecum directs a witness in possession of

records to produce the documents. There are significant differences be-

tween the subpoena powers of the court system and those of the federal

administrative agencies.

Most

importantly, an opportunity

is

afforded

to the administrative subpoena recipient, prior to the intrusion, to assure

that the subpoena

is

proper. In administrative law practice this has led

to the addition of procedural steps for enforcement of subpoenas and in-

spection warrants. Administrative subpoenas are not self-executing; the

recipient of an agency’s subpoena may refrain from complying with

it,

*

Assistant Professor of Business Law, Pennsylvania State University.

“The right

of

the people

to

be

secure in their persons, houses, papers, and effects,

against unreasonable searches and seizures, shall not be violated, and

no

War-

rants shall issue, but on probable cause, supported by Oath

or

affirmation, and

particularly describing the place

to

be searched, and the persons

or

things to

be seized.”

US.

CONST. amend.

IV,

Warrantless searches have been allowed in

some extraordinary situations.

See,

e.g..

Cooper v. California,

386

U.S.

58

(1967); Wong Sun v. United States,

371

U.S.

471

(1963);

Abel v. United States,

362

U.S.217 (1960); United States v. Mitchell,

322

US.

65

(1944);

Carroll v. United States, 267 U.S.

132 (1925).

320

I

Vol.

23

I

American

Business

Law

Journal

without penalty, until directed by a court to comply.’ The fairness of ad-

ministrative subpoenas is at issue in enforcement actions. Enforcement

must comply with the standards enunciated in

United States

v.

Powell,’

which criteria are intended to assure that agencies do not arbitrarily abuse

the subpoena process to gain an advantage beyond that granted by

Congress.

The contours of the administrative agency investigatory powers have

changed somewhat in recent years. Court decisions concerning third party

subpoena notice‘, evidentiary privilege5, parallel agency investigations6,

inspection warrants7, and the confidentiality of informationa deserve close

scrutiny. This article examines these developments and the challenge

posed to the courts and Congress to develop consistent criteria for ade-

quate investigations which protect against investigatory abuse.

SUBPOENA

POWERS

AND

LIMITATIONS

Absent

a

special statutory ~cheme,~ most regulatory agencies conduct

investigations which are procedurally similar. The Securities and Ex-

change Commission (SEC) follows a typical procedural process. The

SEC

uses the subpoena power in questioning issuers of securities to gather

evidence

of

violations of the filing, reporting,

or

anti-fraud provisions of

the securities laws. Evidence of market manipulation also can be sought

from insiders, broker-dealers and others involved in the sale of securities.

Additionally, certain third parties, usually associated with the regulated

entities, are often recipients of SEC subpoenas. They include counsel,

auditors, transfer agents, underwriters, broker-dealers, former

or

pre-

sent employees of the issuer, and consultants. Documents held by in-

vestigatory “targets” and by third parties are often sought with a sub-

poena duces tecum.

The subpoena powers

of

the federal administrative agencies are not

unlimited. The potential for abuse of the subpoena power can be

*

See

Donaldson v. United States,

400

US.

517, 523 (1971).

The Administrative

Pro

cedure Act (APA) provides little guidance

for

the judicial enforcement

of

administrative

subpoenas. The agency must produce

“a

statement

or

showing

of

general relevance and

reasonable scope

of

the evidence sought.” The APA is similarly vague in its requirement

that “the court shall sustain the subpoena

or

similar process

or

demand to the extent that

it is found to be

in

accordance with law.”

5

U.S.C.

$

555(d) (1982).

379 US. 48 (1964).

S.E.C.

v.

Jerry T. O’Brien,

104

S.

Ct.

2720 (1984).

United

States

v.

Arthur Young

&

Co.,

104

S.

Ct.

1495 (1984).

United States v. Baggot.

103

S.

Ct.

3164 (1983);

S.E.C.

v.

Dresser Indus., Inc.,

628

F.2d

1368

(D.C. Cir.

19801,

cert.

denied,

449

US.

993 (1980).

‘

Donovan v. Dewey,

452

U.S.

594 (1981).

’

F.T.C.

v. Lonning,

539

F.2d

202

(D.C. Cir.

1976);

see

also

Chrysler v. Brown,

441

U.S.

281 (1979).

E.g.,

26

U.S.C.

!$

7605(b) (1982).