U.S. subpoenas two Dow writers, then backs off

The SEC subpoena sought information about articles that have contributed to stock declines at several companies.

March 4, 2006 4:00 a.m. PT

5 min read

The Securities and Exchange Commission took the rare step of issuing a subpoena to two journalists two weeks ago when it ordered columnists at two Dow Jones publications to provide information about conversations that they had with stock traders and analysts.

The subpoena had been issued to Carol Remond and Herb Greenberg, who disclosed its existence on Friday.

But after receiving questions from reporters preparing articles on Friday about the subpoena, the commission appeared to soften its stance. The agency then decided not to enforce the subpoena or seek any documents from the journalists, at least for the time being, government officials and a company spokeswoman said.



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The abrupt about-face was an unaccustomed victory for a news organization, as journalists have found themselves under increasing pressure in recent months from law enforcement authorities for information and testimony. In several notable instances over the last two years, including one involving The New York Times, the journalists have gone to jail rather than cooperate with law enforcement officials.

In other instances, news organizations that were traditionally resistant to cooperating with subpoenas have complied to avoid severe financial penalties and possible jail sentences.

The SEC subpoena sought information from Greenberg about columns that he wrote for MarketWatch.com and from Remond, a columnist for Dow Jones Newswires, about articles that have contributed to stock declines at several companies. Dow Jones, the owner of MarketWatch as well as The Wall Street Journal, had raised objections to the subpoena but had not received a reply until SEC officials began to receive questions from reporters.

A spokeswoman for Dow Jones, Amy Wolfcale, said, "It's our understanding that the SEC has decided not to seek production of any documents from Dow Jones at this time."

But, she said, "The SEC may come back in the future."

Commission officials said earlier that the agency issued subpoenas to journalists only as a last resort and after careful consideration by senior officials in the enforcement division in Washington. They also said that the subpoena did not reflect a departure from past practice or a stepped-up effort to go after journalists.

Lawyers in the San Francisco office of the SEC, who issued the subpoena, are examining accusations that a research firm, Gradient Analytics, and its predecessor company, Camelback Research Alliance, have worked with short sellers and hedge funds to manipulate the share prices of several companies. Greenberg's columns have moved the share prices of some of the companies at issue, particularly Overstock.com, and as a result, he has rankled some executives.

While accusations by companies that short sellers--who are betting that a share price will fall--are trying to manipulate stock are not unusual, they rarely spill into court.

Although other federal agencies have been more aggressive in their efforts to obtain information from journalists, the Securities and Exchange Commission has been more restrained. Current and former officials said that they could not recall a similar instance of a subpoena of a journalist by the SEC, other than in the well-known insider trading cases involving reporters in the 1980s and 1990s. In those cases, unlike this one, the reporters were the subject of the investigation.

"I'm surprised," said David Becker, a former general counsel at the SEC "It's a regular complaint of companies that they are the subjects of a short-selling campaign and people have been feeding all sorts of nonsense about them. That doesn't mean that it isn't true sometimes. But I can't think of an instance of a subpoena being issued to the press in such a case."

An SEC spokesman, John Nester, said, "Under longstanding practice, the SEC generally subpoenas journalists only when it is absolutely necessary and after careful thought and consideration."

A subpoena is a demand for information and does not imply that the recipient is anything more than a possible witness.

Criminal prosecutors have been successful in forcing testimony from reporters--most recently in the inquiry over the disclosure of the identity of a Central Intelligence analyst, Valerie Plame. Courts have found greater protection for journalists facing subpoenas in civil proceedings, although they have also ruled in favor of the federal agencies.

Last October, for instance, a federal district judge in Washington found that a reporter's privilege protected the publisher McGraw-Hill against providing information being sought by a subpoena issued by the Commodity Futures Trading Commission. But the judge, Royce Lamberth, also found that the privilege was overcome and that the McGraw-Hill publication, Platts, had to turn over information and documents relating to an energy marketing company's submission of trade data.

The commodities commission had accused the energy company of trying to manipulate natural gas prices by reporting false information to Platts, which publishes daily and biweekly indexes and price ranges for the energy market.

In the case involving the two columnists, the SEC has also issued subpoenas to former executives at Gradient. Letters from the agency describing the subpoenas are posted on a Web site set up by Overstock.com, which has been locked in a long-running battle with Greenberg over columns that have been highly critical of the company.

Last summer, Overstock.com filed a lawsuit in Superior Court in California accusing Gradient, a short seller named David Rocker, and others of conspiring to drive down Overstock's stock price.

In an affidavit in the Overstock.com lawsuit, a former employee of Gradient said that Greenberg would frequently log on to the analyst firm's Web site to review recent research reports.

The former employee, Robert Ballash, worked at Camelback Research Alliance from 2001 to 2004. Ballash said in his affidavit that Brian Harris, who was an editor of Greenberg's when the two worked together at TheStreet.com, had been retained by Camelback to draft research reports on particular companies.

Harris did not return a telephone call seeking comment. In a column last October, Greenberg called the Ballash affidavit "fiction" and "ludicrous and laughable."

The SEC subpoena also sought notes and e-mail messages about any discussions that Greenberg may have had with Gradient executives about Novastar, Omnivision, Taser International and Navarre, said a person who has seen the subpoena. Greenberg has written critical columns about some of those companies.

In his column on Friday, Greenberg said that Gradient Analytics "has served and continues to serve as a valued source for this column."

"Some of my best tips, as a stocks columnist who prefers flying red flags instead of green ones, have come from people who short shares," he wrote. "That's because their research is often the best."

"If my unpublished communications aren't safe from government eyes, then the tools of every business reporter in this country become fair game for any company that doesn't like scrutiny and chooses to play the 'conspiracy' card," he continued. "If that happens, sorry to say--dear readers--you will be on your own when it comes to policing public companies."