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BOARD OF GOVERNORS
OPTHC

F E D E R A L RESERVE SYSTEM

Office Correspondence
*A
|
P

Chairman Eccles

T»nte Mav 9. 1959
Subject

T?mm Mr. Thurston
The Court of Appeals decision in the Bank of America vs. S.l.C.
case spanks the Commission pretty hard. I t holds that the Secretary was
justified in letting the S.l.C. have Bank of America examination reports,
but that the S.l.C. had no right to broadcast the information contained
therein in the way that i t was done. The decision states that this was
calculated "to cause serious prejudice to the bank and bring i t , in advance of any hearing, into public disrepute11. And that "there is nothing
in the Act which authorizes publicity in advance of hearing".
The Court said further:
"Under regulations prescribed by the Administrative Committee of the Federal Register, notices of hearing must be published
in the Register, but the rule does not require the publication as
part of such notice of the evidentiary facts; and where, as in this
case, the latter are obtained from confidential sources, neither the
purpose nor intent of the Act contemplates their broadcast to the
public. I t is not difficult to see that such a power might easily
be made an instrument of oppression and, lacking specific congressional authorization, we think i t ought not to be indulged. In
addition to this, pretrial publication of evidence—labeled as believed to be true—ought, we think, to be avoided, especially as
emanating from the tribunal charged with the judicial responsibility
of weighing i t and assuring the accused a fair hearing. And, i f
this is the correct view, i t is particularly pertinent here, for
after a l l the Bank is not a party in the proceeding instituted by
the Commission. Its connection with the investigation grows wholly
out of the fact that its largest stockholder, Transamerica, in
certifying its own financial condition, is believed by the Commission
to have violated the provisions of the Securities Exchange Act. So
far as the Bank is concerned, even i f the charge, as to i t , is true,
any possible violation by i t of the banking laws, is a matter not
within the Commission's reach. And certainly until findings are
made, the Bank is entitled to have judgment, public and official,
suspended.11
The opinion also holds in effect, as I read i t , that the S.l.C.
shall not go behind the Comptrollerfs findings, stating, "The Bank must
follow the Comptrollerfs orders. And i f Transamerica can show the Bankvs
compliance therewith, we may assume the Commission would hate no right to
substitute its opinion in place of the Comptrollerfs."




- 2 As to the subpoenas that were issued to the bank's officers,
the Court states:
" I t is perfectly clear, we think, that conq?liance with
these demands w i l l , for a l l practical purposes, close the Bank,
and i t is equally clear that by transferring the place of hearing from Washington to San Francisco the Commission may carry on
i t s investigation without unduly and unreasonably hampering the
Bank in its business• I f this is so, then any other course is
so unreasonable as to require correction**
Finally, on this point, the Court states:
"While i t is true the Act authorizes the Commission to
subpoena witnesses from any part of the United States, w think
e
i t a f a i r statement that Congress never intended that the power
should be exercised to bring from one side of the country to the
other the principal officers of a bank and the books and records
covering a period of ten years to appear before an examiner of
an administrative commission. The right to be free of suit except in the District of which one is an inhabitant is a fixed
part of our federal judicial history* Its statutory requirement
arose out of the experience of colonial days* I t s wisdom has been
proved in the passage of time, and no more obvious reversal of its
spirit could be cited than is shown i n the facts of this case* For
a l l of these reasons, w are of opinion the subpoenas are une
reasonable . . * .