• Judge Chastises SEC for Discovery Abuses
  • April 29, 2009
  • Law Firm: Holland & Hart LLP - Denver Office
  • A U.S. District Court opinion issued early this year raises questions about the SEC’s commitment to fairness and making full disclosure to defendants in litigation.  In SEC v. Collins & Aikman Corp., No. 07-2419 (S.D. N.Y. Jan. 13, 2009), 2009 U.S. Dist. LEXIS 3367, the agency charged a public company and one of its officers with engaging in fraudulent accounting.  The SEC asserted various objections in response to the officer’s discovery requests, chiefly by claiming that certain compilations of documents were protected by the work product doctrine, other documents were protected by the deliberative process privilege, and the production of e-mails sought by the defendant would be unduly burdensome.

    In her opinion, Judge Chira Shiendlin  rejected the SEC’s work product theories as “tenuous” and further stated that it was “patently inequitable” to require the defendant to “search ten million pages to find documents already identified by [the SEC] as supporting the allegations of [its] complaint.”  The court further characterized as “patently unreasonable” the SEC's “blanket refusal to negotiate a workable search protocol” responsive to the officer’s document requests, and as “unacceptable” its refusal to produce any incoming or outgoing e-mails.   The court concluded that “ when a government agency initiates litigation, it  must be prepared to follow the same discovery rules that govern private parties.”

    As a governmental agency and prosecutor, the SEC has special obligations to  seek justice rather than to win at any cost.  While this perhaps is an isolated case, the staff’s recalcitrance suggests a lack of good faith and is reflective of the “hide the ball” position that it all too often takes during the Wells process.   Although the public has a right to expect more aggression from the Enforcement staff in response to the economic crisis, it also has a right to expect the staff to investigate and litigate in a manner that is fair and respectful of the rights of witnesses and defendants.