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FIRST JERSEY SECS., INC. v. SEC

December 13, 1982

FIRST JERSEY SECURITIES, INC., ROBERT E. BRENNAN, ANTHONY NADINO, ROBERT SANTO, JOHN E. DELL, and PETER J. AIELLO, Plaintiffs,
v.
THE SECURITIES AND EXCHANGE COMMISSION and DAVID J. MARKUN, Defendants



The opinion of the court was delivered by: SAROKIN

 Plaintiff First Jersey Securities, Inc. and several individual plaintiffs filed this complaint alleging various constitutional and statutory violations arising primarily out of two incidents.

 The first incident is the undisputed disappearance of some of plaintiffs' files from an S.E.C. hearing room in New York. The files were left in the hearing room by the plaintiffs after hearings in an action to determine whether plaintiffs had violated security laws, (hereinafter the administrative proceeding), adjourned in October of 1980. In December 1980 it was discovered that the files were no longer in the hearing room. On September 15, 1982, there was a meeting between S.E.C. personnel and plaintiffs' counsel to discuss the missing files. These are the only undisputed facts; the remainder of the facts are in substantial dispute. Plaintiffs claim that their files were stored in the hearing room with the permission of the S.E.C. and with assurances that they would be safe. Plaintiffs allege misrepresentations by S.E.C. personnel regarding the missing files. Defendant claims that, while the S.E.C. did not object when plaintiffs' files were left in the room, no assurances were given for their safety. Defendant claims that S.E.C. personnel took responsible actions upon learning of the missing files. Plaintiffs also claim that these files contained documents relevant to an unrelated S.E.C. investigation. (Geosearch).

 Since the initiation of this action thorough searches have been conducted for the files, but they have not been located. Defendant concedes that it is unlikely that the files will be located. As a result of this incident, plaintiffs claim violations of due process, the Administrative Procedure Act, S.E.C. Rules and Regulations, the Records Management by Federal Agency Act and Disposal of Records Act, and claims based on breach of contract, trespass and negligence.

 The second incident involves the admission on June 30, 1980, by the Administrative Law Judge handling the administrative proceeding, that someone in the agency had abstracted (or clipped) newspaper articles relating to S.E.C. matters and circulated them to personnel, including himself. In July of 1980 the ALJ refused to issue subpoenas to himself and the Secretary of the S.E.C. to produce these materials; also in July of 1980 the ALJ denied plaintiffs' motion that he disqualify himself. On September 30, 1980, the S.E.C. affirmed these actions. Plaintiffs label these documents ex parte communications and allege resulting violations of due process, the APA and S.E.C. Rules and Regulations. Plaintiffs also seek mandamus of the S.E.C. to issue the subpoenas and an evidentiary hearing in this court on the content of these communications. Defendant does not concede that these are ex parte communications.

 On September 22, 1982, plaintiffs filed an emergent motion for an adjournment of the administrative proceeding. This court issued temporary restraints on September 25, preventing any agency action, including action on that motion. On October 22 the parties entered into an agreement that contained voluntary restraints on the S.E.C. proceedings, but allowed the agency to consider the emergent motion for adjournment. These voluntary restraints were to expire on December 8. On October 27 the Enforcement Division of the agency responded to the emergent motion by arguing that it was improperly addressed to the Commission rather than to the Administrative Law Judge who was hearing the matter. At the request of plaintiffs, an extension of time to file reply papers was granted, until November 12. The reply papers of plaintiff were filed on November 15. The agency has not yet ruled on the emergent motion.

 At oral argument on December 3, the court was informed that the S.E.C. had determined, on December 1, to file an enforcement action in a district court against plaintiffs herein relating to the Geosearch matter. This decision resulted from the Geosearch investigation. The government represented to the court that it intended to file this action immediately upon the expiration of the voluntary restraints. At the conclusion of the hearing the parties agreed to extend the restraints until 4:00 p.m. on December 13, in order to afford the court time to prepare an opinion based upon this late development.

 The current application before the court by plaintiffs seeks:

 
(1) an order to show cause as to why an injunction should not be entered restraining further prosecution of the S.E.C. proceedings against plaintiffs;
 
(2) injunctive relief staying the administrative proceedings against plaintiffs in the S.E.C., and restraining the S.E.C. from prosecuting any matters against plaintiffs in any forum until not less than 120 days after plaintiffs' files are recovered and returned to them;
 
(3) an order to defendants to disclose and place on the administrative record all news abstracts and other materials supplied to the ALJ on an ex parte basis;
 
(4) an evidentiary hearing after disclosure of the ex parte communications and upon return of plaintiffs' files on the effect of the communications.

 The S.E.C. opposes this application and has also filed a motion to dismiss the complaint for lack of subject matter jurisdiction and because the matter is not ripe.


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