SECURITIES EXCHANGE ACT AMENDMENTS OF 1973 THURSDAY, JUNE 7, 1973 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMERCE AND FINANCE, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D.C. The subcommittee met at 10 a.m., pursuant to notice, in room 2322, Rayburn House Office Building, Hon. John E. Moss, chairman, presiding. Mr. Moss. The subcommittee will be in order. Today we continue hearings on title I of H.R. 5050 and H.R. 340. We will hear from the Solicitor General of the United States and from the Securities and Exchange Commission. One area we hope to explore with the Commission today is that of staffing. A recent newspaper article has raised the question of whether the Commission is making high-level staff appointments itself or whether those appointments are being dictated by the White House. I personally found the newspaper article so disturbing that I wrote to the chairman of the Senate Subcommittee on Banking, Housing, and Urban Affairs, which committee holds confirmation hearings on SEC appointments. I ask that my letter and Chairman Sparkman's reply be placed in the record this morning. Hearing no objection, it is so ordered. CONGRESS OF THE UNITED STATES, Hon. JOHN SPARKMAN, Chairman, Committee on Banking, Housing and Urban Affairs, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: I am deeply disturbed by a front page article appearing in yesterday's Washington Post disclosing that the law firm of former White House aide, Charles Colson, attempted to "lean on" G. Bradford Cook, the recently departed chairman of the Securities and Exchange Commission to get him to appoint a particular person as the agency's General Counsel. The attempt was to be made by having Mr. Colson contact members of the White House staff and induce them to put pressure on Mr. Cook. As you are aware, Mr. Chairman, the staff of the Securities and Exchange Commission plays a critical role in the enforcement of the federal securities laws, and in the shaping of agency policy. The staff of the SEC has been widely regarded as among the best and most capable of any agency in government. This has been true because, until recently, staff positions were filled solely on the basis of merit, and the staff was not involved in partisan politics. Unhappily, this situation has been changing. This change became apparent during the chairmanship of William J. Casey. And when Mr. Cook was nominated to succeed Mr. Casey, there were disquieting rumors that Mr. Cook would not be free to make top level staff appointments, but rather that these appointments would be directed by the White House staff. This was explored only briefly at Mr. Cook's confirmation hearing by Senator Proxmire. I believe that it is crucial that the person nominated to succeed Mr. Cook have a free hand with respect to staff appointments. I would urge your Committee to reject any nomination sent to you, unless you are satisfied that the nominee will be able to make his own staff appointments, and that these appointments will be based on competency for the job, rather than loyalty to the person of the President, or to members of his staff. While I would normally not consider advising you about confirmation matters which, under the Constitution, are solely the province of the Senate, the policy at issue is so vital to the public interest that I felt that I should communicate my thoughts to you. The House, no less than the Senate, is charged with insuring that the Securities and Exchange Commission functions in the public interest, and we are vigorously discharging that responsibility. But our actions generally must be after the fact. It is normally the Senate, through its right to reject proposed nominees, that can act in advance of events. I hope that at the confirmation hearings on the nominee to be chairman of the SEC, whoever that person may be, your Committee will inquire deeply into the independence of that person from White House influence with respect to SEC staff appointments. Sincerely, JOHN E. Moss, Chairman, Subcommittee on Commerce and Finance. U.S. SENATE, COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS, Hon. JOHN E. Moss, DEAR MR. CHAIRMAN: I appreciate your letter concerning confirmation of the next chairman of the Securities and Exchange Commission. You may be sure that our committee will be assured of the freedom of the next chairman with respect to staff appointments, as well as other areas, before confirmation. With best wishes, I am Sincerely, JOHN SPARKMAN, Chairman. Mr. Moss. Now, Mr. Solicitor General, we welcome you and your associate as witnesses before this committee. STATEMENT OF HON. ERWIN N. GRISWOLD, SOLICITOR GENERAL OF THE UNITED STATES; ACCOMPANIED BY DANIEL M. FRIEDMAN, FIRST DEPUTY SOLICITOR GENERAL Mr. GRISWOLD. Mr. Chairman, and members of the committee, I am Erwin Griswold, the present holder of the office of the Solicitor General of the United States and I am accompanied by Daniel Friedman, who is the first deputy in the office. He has been in the Department of Justice for a good many years and the Office of the Solicitor General for 10 years or more, and is a very valuable aide to the Solicitor General I have prepared a rather lengthy statement which I would ask to be made available to the committee and included in the record. Mr. Moss. Without objection the statement will be placed in the record in its entirety and you may proceed to summarize it. Mr. GRISWOLD. I had planned to summarize it. The statement is as long as it is partly because I felt this was a good opportunity to make a fairly complete survey of this whole area. I find it mildly embarrassing to do it because it is inevitably self-serving, not with respect to myself but with respect to the office with which I have been connected for a good many years. I was a young man in the office for 5 years many years ago, and I have been Solicitor General now for six terms of the Supreme Court. I think the office is an important one in the effective handling of the legal affairs of the Government, and I would be very sorry, indeed, to see its influence impaired, not for any reason of self-satisfaction with respect to the office, but because I believe that it performs a very important function. I think that part of the problem of the Solicitor General's Office and its relations with other agencies arises out of another problem, which is very much with us, and which no one has been able to resolve so far, which is that the Supreme Court cannot possibly handle all of the cases that people would like to have it handle. It now hears about 125 or 130 cases on the merits each term, which is about the same number it did 40 years ago, and less than the number it did 100 years ago. It necessarily must pick and choose quite sharply among the cases which are brought to it, and one of the functions of the Solicitor General is to sift through the various Government cases and to try to put before the Court, with his imprimatur, cases which, in his opinion, really merit Supreme Court consideration in the light of all the competition there is to get Supreme Court consideration. There are many other cases which, it seems to me, it would be highly desirable to have some sort of a national court decide, but which, for various reasons, do not seem appropriate for Supreme Court consideration. Let me say next that I am a little puzzled that this problem arises now. We are very much aware of the relations of the Solicitor General's Office to the independent agencies and the other departments of the Government. We are in constant touch with them and their counsel, and we exercise great care in trying to maintain good relations with them. I know that there have been various suggestions in the past, notably from Commissioner MacIntyre of the Federal Trade Commission, that the Solicitor General was a barrier to the handling of the legal affairs of that Commission. I can only say that, during my time, I have felt quite sure that my relations with Chairman Weinberger and Kirkpatrick of the Federal Trade Commission were excellent, and that they valued the help and advice that we gave them. We have also had constant relations with the legal people of the Securities and Exchange Commission, and I have had the same feeling with respect to them, that our relations were close and cordial. We were not always in complete agreement, but lawyers frequently don't agree, and we have certainly tried to give every agency a full hearing and very careful consideration. The first point that I made in the statement which has been filed relates to the functions of the Office of the Solicitor General. It is not a very well-known office to laymen, and even many lawyers are not closely familiar with its responsibilities. Under the regulations of the Department of Justice, the Solicitor General is charged with handling all Government cases before the Supreme Court of the United States. He also makes the decision whether the Government will appeal any cases which it loses to a higher court, and finally, whether a brief amicus curiae be filed in the Supreme Court or in any other appellate court. 20-306-74-pt. 1—19 I don't think that there is general awareness of the volume of this work, but during the term which ended in June 1972, the last completed term, my office filed 91 briefs on the merits in the Supreme Court, 44 petitions for certiorari, 11 jurisdictional statements, and 1,412 briefs in opposition or motions to affirm. This comes to an aggregate of more than 1,600 documents filed by my office in the Supreme Court, which, if you take 250 working days a year, 50 weeks of 5 working days, that comes out to 6 a day. I mention that not just to show that we do a lot of work, but also that we inevitably embody a very large amount of experience in Supreme Court work, not only with respect to its practice but with respect to the types of arguments which seem to be effective, and I think that that reservoir of experience in the Solicitor General's Office is a very important asset to the Government. If every agency-and I say I refer to every agency, because it seems to me there is some risk if the authority of the Securities and Exchange Commission is extended to handling its own cases before the Supreme Court, that the corresponding efforts will be made with respect to other agencies-if every agency can present its own cases, I have some fear that the effectiveness of the presentation of Government cases before the Supreme Court will be diminished. There are problems as to the number of cases which would be filed. There are also problems of varying interests between different agencies of the Government, where I think the Solicitor General's Office frequently works out bases upon which the Government's views can be most effectively presented. I remember a case wholly unrelated to the Securities and Exchange Commission involving the question whether programs transmitted by cable television were subject to copyright laws or not. In other words, whether the cable television company had to pay royalties as the broadcasting companies do. The Registrar of Copyrights, who is in charge of the Copyright Office, had very strong views about that, and the Federal Communications Commission had very strong views about that, and the Antitrust Division in the Department of Justice had very strong views about that. They were all different views, and one way to handle it, of course, would have been to let each of these people file their own brief in the Supreme Court and let the Court consider all the arguments that could be made, involving, I suppose, the reading of three such briefs, 200 or 250 pages of arguments, much of which would have been duplicative and repetitious. Instead, we held extensive conferences, first with each agency separately and then with all three agencies together so each could understand the viewpoint of the other. We finally worked out a brief which had wide acceptance by the three agencies, though not complete agreement. I think we were able to be much more effective with the Supreme Court than it would have been if there had been simply three independent voices presented. Now, there is another thing that the Solicitor General's Office does, which I think sometimes agencies don't fully appreciate at the time, although in the long view they often accept it. The Solicitor General's Office has learned from long experience that it is extremely unwise to hazard before the Supreme Court an important legal question on unhappy facts. I had a case recently involving a search and seizure at the Mexican border. I thought that the Ninth Circuit Court of Appeals had probably made a wrong decision. But the person searched was a 72-yearold grandmother who was accompanied by her three grandchildren at the time, and the large bulge which the agent had seen, and which had led him to make the search, turned out on the search being made, to be a roll of fat above her girdle. I just thought we were not going to get very far in the Supreme Court in that particular case, even though the search did disclose elsewhere the importation of improper articles. That did not mean we abandoned that point; namely, that where the agent has reasonable cause to think that a search should be made, the search is valid even though the particular reasonable cause doesn't turn out to be the right one. It simply meant we would wait for another case on better facts on which to present that issue. I give that example as not an important one but simply as one of the things which we regard as very important and we take that into account in determining whether a case should be taken to the Supreme Court. I might say in that case various agencies of the Government recommended an application for certiorari. I did not authorize it and I would think that was right. One of the things you have to take into account with respect to an application for certiorari is that it may lead to an adverse decision, and an adverse decision of the Supreme Court is far more damaging to the interests of the Government than an adverse decision of a Court of Appeals, and particularly a district court, which tends to fade into the background and not carry very great precedential significance. Now in this statement I have included the letter from the Supreme Court which was printed in the hearings a year or 2 ago in which the Court said that it felt that there would be a serious increase in the workload of the Court if the Solicitor General's authority here was impaired. I have also included the statement of my former colleague at Harvard Law School, Prof. Louis Loss-whom I am proud to say I stole from the Commission's staff and who has become a great law professor-in which he refers to the expertness and the prestige of the Solicitor General's Office as benefiting SEC litigation. I have also summarized in some detail under point V of my statement the handling of specific cases relating to the Securities and Exchange Commission over the past 10 years. I really find that there are only 2 instances where there was a major disagreement between the Solicitor Generals office and the Securities and Exchange Commission over the 10 years. One was in the Grayson-Robinson Stores case in 1963. The Solicitor General then was Archibald Cox and, as things worked out, the same question came up in a better case a year later and was decided by the Supreme Court. The other instance was last fall where the Commission was very anxious to have us file a brief amicus curiae in the Supreme Court in a case in which the Commission was not a party. I may say, speaking in general terms, I have been trying very hard, but without too great |