Brian Sutter, the staff director of the subcommittee on health of the House Ways and Means Committee. ()
The Securities and Exchange Commission is urging a federal judge to enforce two administrative subpoenas for congressional committee records and the testimony of a staffer in an insider trading investigation.
In a collision between two branches of government, the SEC in papers told Southern District Judge Paul Gardephe (See Profile) that it needs documents from a subcommittee of the House Ways and Means Committee as part of a probe into leaks of inside information on the setting of Medicare reimbursement rates, and the Ways and Means Committee has no basis in the law for refusing.
The SEC, in a memo filed Wednesday, rejected the argument of the subcommittee on health that it and its staff director, Brian Sutter, do not have to comply with the SEC subpoena because of sovereign immunity.
“[I]n the absence of any precedent,” SEC lawyers said in the memo, the respondents “ask the court to become the first to apply federal sovereign immunity against a federal law enforcement agency conducting an investigation in a sovereign capacity.”
The SEC is examining the relationship between Sutter and Greenberg Traurig lobbyist Mark Hayes as part of an investigation into trading ahead of an April 1, 2013 announcement on reimbursement rates that caused the stocks of Humana Inc. and other health insurance companies to soar. The SEC issued the subpoenas six months ago.
The first subpoena sought documents from the subcommittee from Feb. 10, 2013 through April 10, 2013, concerning any communications between Sutter and anyone at Greenberg Traurig. The second sought documents from Sutter, including any communications with Hayes, and for Sutter to testify.
On July 4, attorneys for the House committee, led by House of Representatives General Counsel Kerry Kircher, called the SEC subpoena part of “a remarkable fishing expedition” (See memo).
Kircher and the House legal team said the SEC was looking into the possibility that information on the rates allegedly flowed from Hayes to an analyst at Height Securities. But they noted that Greenberg had issued a statement saying Hayes did not possess material nonpublic information and had merely provided his own policy analysis to Height Securities.
The House lawyers said the subpoena should be defeated not only because of sovereign immunity, but also because the court lacked personal jurisdiction. In the alternative, they said the case, if any, should be moved to the District of Columbia.
Separately, they argued, it should be dismissed because the committee and Sutter were absolutely immune under the Speech and Debate Clause in Article 1, §6, clause 2 of the United States Constitution.
Finally, they contended Sutter was shielded from testifying by his rank as an official, and the SEC has failed to establish the “exceptional circumstances” required to compel his testimony.
But the commission, represented by SEC lawyers Richard Primoff, Michael Birnbaum and Amanda Straub, said Wednesday that “the likelihood is that much if not all of the requested information falls well outside the scope of the clause.”
“The remainder of respondents’ brief is devoted to irrelevant criticism about the progress of the commission’s investigation, observations about the lack of allegations of any wrongdoing, and protestations that respondents committed no wrongdoing,” they stated in Securities and Exchange Commission v. The Committee on Ways and Means of the U.S. House of Representatives, 14 Misc. 00193.
In their attack on the claim of sovereign immunity, the SEC attorneys said courts regularly entertain litigation between the branches of government, and there is no case law supporting the notion that immunity precludes a federal agency “acting in a sovereign investigative or law enforcement capacity from bringing an action against another branch of the same federal sovereign.”
Sovereign immunity, they argued, can’t apply in this context “because sovereign immunity is and always has been, premised on an ‘immunity from private suits’ that has been considered ‘contrary to sovereign dignity,’ Alden v. Maine, 527 U.S. 706 (1999).”
Finally, as they did when first filing the action in the Southern District, the SEC attorneys said that even if sovereign immunity is applied here, “Congress expressly waived any such immunity when it enacted the Stock Act.”
“The Stock Act provides that ‘members and employees of Congress are not exempt’ from the insider trading laws, and this placed congressional actors on equal footing with everyone else,” they the SEC stated.
The committee memo stated that the Justice Department was also investigating and, on May 1, 2014, caused a grand jury subpoena to be issued to Sutter. But after Sutter provided an attorney proffer to both the Justice Department and the SEC, Justice withdrew the subpoena “presumably in recognition of the fact that Mr. Sutter does not possess information pertinent to its investigation.”
Unlike the Justice Department, the SEC kept going and filed suit in the Southern District “after walking away from the committee and Mr. Sutter’s further efforts to reach an accommodation, ” the committee said.
It criticized the SEC for an investigation that, citing press reports, “came up short long ago.”
“While … the SEC has not alleged any wrongdoing on the part of the committee or Mr. Sutter, it has insinuated—citing nothing—that it has ‘some…information’ that Mr. Sutter ‘may have been a source for the GT Lobbyist’s non-public information,” the committee lawyers state. “This sort of unsubstantiated effort to tarnish Mr. Sutter is reprehensible and wholly unbecoming of an agency of the United States government.”
Oral argument on the issue has yet to be scheduled.