DC Circuit: Are Court Documents Public, Senator? We Believe So.

Look Congressman, your lot just embarrassed the judiciary and forced us into the Stock Act re failure to disclose stockholdings and now y’all want our protection for insider-share trading and shorting stocks?

MAR 18, 2022 | REPUBLISHED BY LIT: MAR 19, 2022

I.

On February 13, 2020, Senator Richard Burr and his wife sold stocks valued between $628,000 and $1.72 million, as disclosed in mandatory Senate filings. Soon after, the stock market fell sharply as news about the COVID-19 pandemic spread. Because, shortly before those sales, Senator Burr had received briefings on the pandemic in his capacity as a Senator and member of the Senate Committee on Health, Education, Labor and Pensions, the February 13 trades quickly garnered media scrutiny and public attention.

See, e.g., Eric Lipton & Nicholas Fandos, Senator Richard Burr Sold a Fortune in Stocks as G.O.P. Played Down Coronavirus Threat, N.Y. TIMES (Mar. 19, 2020),

https://www.nytimes.com/2020/03/19/us/politics/richard-burr-stocks-sold-coronavirus.html.

On May 13, 2020, Los Angeles Times Communications LLC reported that Senator Burr had been served with a search warrant and that his cellphone had been seized in connection with an alleged investigation by the Justice Department into his stock trades.

Del Quentin Wilber & Jennifer Haberkorn, FBI Serves Warrant on Senator in Investigation of Stock Sales Linked to Coronavirus, L.A. TIMES (May 13, 2020),

http://lat.ms/2N0cTNh. [Article transcribed below opinion]

The article was based on the comments of a “law enforcement official” who was “speaking on condition of anonymity to discuss a law enforcement action.” Id.

Eight months later, Senator Burr issued a public statement noting that the investigation into the stock transactions had been closed.

See Vanessa Romo, DOJ Drops Insider Trading Investigation Into Sen. Richard Burr, NPR (Jan. 19, 2021),

https://www.npr.org/202l/01/19/958622574/doj-drops-insider-trading-investigation-into-sen-richard-burr.

On February 24, 2021, the L.A. Times filed a motion in the U.S. District Court for the District of Columbia pursuant to Local Criminal Rule 57.6, requesting that the district court unseal court records related to the search warrant allegedly executed on Senator Burr’s cellphone.

In support, the L.A. Times claimed rights of access under the common law and the First Amendment to the U.S. Constitution.

The government opposed the motion, filing ex parte and under seal. The L.A. Times then moved to unseal the government’s opposition or, in the alternative, to order the government to file a redacted version of its sealed filings on the public docket.

The district court ruled that even if a common law or First Amendment right of access attached, “no disclosure of search warrant materials would be appropriate in a closed, non-public investigation that has not resulted in criminal charges, and where individual privacy and governmental interests may be implicated.”

D.D.C. Mem. Op. & Order at 6 (May 26, 2021) (hereinafter “2021 Mem. Op.”).

Applying United States v. Hubbard, 650 F.2d 293, 317–22 (D.C. Cir. 1980), the court explained that “investigations that had not been acknowledged by the government” may implicate several distinct privacy interests, including “privacy interests of the subject of the investigation, privacy interests of third parties, and investigative interests of the government.” 2021 Mem. Op. at 7.

Further, the court observed that “without acknowledgment by the government, media coverage regarding the existence of a criminal investigation or search warrant does not extinguish the substantial privacy interests underlying search warrant materials, particularly where the specific information in the materials has not been disclosed.” Id. at 8.

Concluding that the “various privacy and government interests . . . would outweigh the public’s interest in disclosure,” id. at 9, the court denied the motion to unseal the hypothesized search warrant materials, id. at 10.

The district court also denied the motion to unseal the government’s opposition for the same reason. Id. at 9 n.3. Responding to the L.A. Times’ reliance on Washington Post v. Robinson, 935 F.2d 282 (D.C. Cir. 1991), the district court stated that Robinson “sets forth ‘Procedures for Sealing Plea Agreements,’ that do not necessar[ily] apply generally to all motions to seal.” 2021 Mem. Op. at 9 n.3 (internal citation omitted).

The L.A. Times subsequently appealed the district court’s memorandum opinion and accompanying order.

Several months after the district court’s opinion was issued, the Securities and Exchange Commission (“SEC”) filed an enforcement action in the U.S. District Court for the Southern District of New York for a subpoena issued to Senator Burr’s brother-in-law, Gerald Fauth.

Application for Order to Show Cause and Order Requiring Compliance with an Investigative Subpoena, SEC v. Fauth, No. 1:21-mc-00787 (S.D.N.Y. Oct. 22, 2021).

In the accompanying memorandum of law, the SEC disclosed that it was investigating stock trades by Senator Burr and Mr. Fauth, and that its investigation paralleled an investigation by the Justice Department.

Memorandum of Law, SEC v. Fauth, No. 1:21-mc-00787, at 3, 6 (S.D.N.Y. Oct. 22, 2021).

The filing also disclosed some of the underlying facts, including records of phone calls among Burr, Fauth, and their brokers. Id. at 4–5.

A separate declaration by Fauth’s counsel recounted a conversation in which Justice Department prosecutors stated that the criminal investigation of Fauth was closed. Decl. of F. Joseph Warin (counsel for Gerald Fauth), SEC v. Fauth, No. 1:21-mc-00787, at 3–4 (S.D.N.Y. Oct. 27, 2021).

II.

The common law right of access attaches to “judicial records,” which this court has characterized as documents intended to “influence a judge’s decisionmaking.” CNN v. FBI, 984 F.3d 114, 116, 118 (D.C. Cir. 2021).

The government’s opposition memorandum is a classic example of a document intended to influence judicial decision-making and is therefore a judicial record.

See League of Women Voters v. Newby, 963 F.3d 130, 136 (D.C. Cir. 2020).

So, too, are the hypothesized search warrant materials, which would have been intended to influence a judicial decision to find probable cause to issue a search warrant. This court has concluded that electronic surveillance applications, which serve a similar purpose to search warrant materials, are subject to the common law right of access.

In re Application of Leopold, 964 F.3d 1121, 1128– 29 (D.C. Cir. 2020).

And other circuit courts of appeals have held that search warrant applications and their supporting affidavits are judicial records.

See, e.g., United States v. Bus. of the Custer Battlefield Museum & Store, 658 F.3d 1188, 1193 (9th Cir. 2011); In re Application of Newsday, Inc., 895 F.2d 74, 79 (2d Cir. 1990).

Where the common law right attaches, there is a “strong presumption in favor of public access to judicial proceedings,” but “that presumption may be outweighed by competing interests.” Leopold, 964 F.3d at 1127 (quoting Hubbard, 650 F.2d at 317) (internal quotation marks omitted).

In Hubbard, 650 F.2d at 317–22, this court outlined a six-factor test describing the relevant interests to be considered upon a motion to unseal. The test is summarized in MetLife v. Financial Stability Oversight Council, 865 F.3d 661 (D.C. Cir. 2017):

[W]hen a court is presented with a motion to seal or unseal, it should weigh

(1) the need for public access to the documents at issue;

(2) the extent of previous public access to the documents;

(3) the fact that someone has objected to disclosure, and the identity of that person;

(4) the strength of any property and privacy interests asserted;

(5) the possibility of prejudice to those opposing disclosure;

and

(6) the purposes for which the documents were introduced during the judicial proceedings.

Id. at 665 (internal citations and quotation marks omitted). The court continued:

A seal may be maintained only “if the district court, after considering the relevant facts and circumstances of the particular case, and after weighing the interests advanced by the parties in light of the public interest and the duty of the courts, concludes that justice so requires.”

Id. at 665–66 (quoting In re Nat’l Broad. Co., 653 F.2d 609, 613 (D.C. Cir. 1981)).

For the following reasons, this court need not now reach the L.A. Times’ arguments under the First Amendment.

This court reviews the district court’s balancing of the Hubbard factors for abuse of discretion. E.E.O.C. v. Nat’l Children’s Ctr., Inc., 98 F.3d 1406, 1410 (D.C. Cir. 1996).

Although its discretion is “wide,” the district court must provide a “full explanation” for its decision, detailed enough to permit “review [of] the district court’s exercise of its discretion.” Id.

Because the SEC’s parallel investigation released details after the district court had denied the L.A. Times’ motions, the district court should on remand re-evaluate and re-weigh the Hubbard factors to determine whether it is still appropriate to seal the hypothesized search warrant materials and the government’s opposition memorandum.

To the extent the hypothesized search warrant materials exist and any materials contain details that were not public when the district court denied L.A. Times’ motion to unseal, the district court should reconsider whether sealing is still justified in view of the Hubbard factors or whether redaction would be an appropriate alternative.

In addition, the district court’s Hubbard analysis is flawed in ways that are independent of the SEC disclosures and should be reconsidered on remand.

First, the district court’s analysis of the first Hubbard factor — the need for public access — falls short of the “full explanation” expected to enable this court to review the district court’s reasoning.

Nat’l Children’s Ctr., 98 F.3d at 1410.

Although the court acknowledges the possible existence of a public interest in disclosure, 2021 Mem. Op. at 9 (noting that “the various privacy and government interests. . . outweigh the public’s interest in disclosure”), its opinion

does not discuss either the nature or scope of that interest or the powerful public interest in learning of a sitting Senator’s potential violation of insider-trading laws based on information acquired in his official capacity. Without further elaboration on the nature of the public interest that the district court found to be outweighed by the privacy and government interests, this court will be unable to determine whether the district court acted properly within its discretion.

Second, the district court placed almost no weight on the extensive media reporting relating to the Justice Department investigation, including the Senator’s own acknowledgment of the investigation, when evaluating the privacy interests at stake.

The court concluded that the privacy interests referenced by Hubbard’s fourth factor are “no less great where some of the relevant information has been reported on in the news media,” stating that “without acknowledgment by the government, media coverage regarding the existence of a criminal investigation or search warrant does not extinguish the substantial privacy interests underlying search warrant materials, particularly where the specific information in the materials has not been disclosed.” Id. at 8.

Even if the interests are not “extinguish[ed],” the district court appears not to have contemplated the possibility that those interests would be attenuated where the very subject of the investigation has acknowledged it.

As the Supreme Court has instructed, a district court’s Hubbard analysis must consider the “relevant facts and circumstances of the particular case,” Nixon v. Warner Commc’ns, Inc., 435 U.S. 589, 599 (1978), which in the instant case would include the Senator’s own acknowledgment of the investigation.

Nor did the district court address whether Senator Burr’s privacy interest was further diminished because the investigation involved actions taken by a public official in his public capacity.

Third, the district court did not address the sixth factor of the Hubbard test — the purposes for which the documents were introduced during the judicial proceedings.

Although the relevance of this factor may vary from case to case, it will “oftentimes carry great weight” when “a sealed document is considered as part of judicial decisionmaking.” CNN, 984 F.3d at 120.

Because the hypothesized search warrant materials and the government’s opposition memorandum would have been considered as part of judicial decision-making, the district court’s failure to discuss that factor similarly frustrates appellate review of its balancing of the Hubbard factors.

Accordingly, the court remands the case to the district court to reconsider its Hubbard analysis in light of the public disclosures in the SEC investigation, the Senator’s public acknowledgment of the Justice Department investigation, and this court’s precedent governing the application of the Hubbard test.

The district court shall reconsider the L.A. Times’ challenge that it was “fundamental[ly] disadvantage[d]” by the court’s decision to seal the government’s opposition memorandum and attached exhibits.

Mot. to Unseal Mot. for Leave to File Doc. Under Seal, Gov’t Resp. in Opp. to Mot. to Unseal, and Attached Exhibits, In re L.A. Times, No. 1:21-mc- 00016, at 4 (D.D.C. April 5, 2021).

FBI serves warrant on senator in investigation of stock sales linked to coronavirus

FILE – In this March 29, 2017 file photo, Senate Intelligence Committee Chairman Sen. Richard Burr, R-N.C. speaks to reporters about his panel’s investigation of Russian interference in the 2016 election, on Capitol Hill in Washington. In an exclusive interview with The Associated Press, the North Carolina Republican opened up about the investigation that has now consumed 19 months of his life. (AP Photo/J. Scott Applewhite)

Federal agents seized a cellphone belonging to a prominent Republican senator on Wednesday night as part of the Justice Department’s investigation into controversial stock trades he made as the novel coronavirus first struck the U.S., a law enforcement official said.

Sen. Richard Burr of North Carolina, the chairman of the Senate Intelligence Committee, turned over his phone to agents after they served a search warrant on the lawmaker at his residence in the Washington area, the official said, speaking on condition of anonymity to discuss a law enforcement action.

Sen. Burr steps aside as Intelligence Committee chair after FBI warrant in stock inquiry

The seizure represents a significant escalation in the investigation into whether Burr violated a law preventing members of Congress from trading on insider information they have gleaned from their official work.

To obtain a search warrant, federal agents and prosecutors must persuade a judge they have probable cause to believe a crime has been committed. The law enforcement official said the Justice Department is examining Burr’s communications with his broker.

Such a warrant being served on a sitting U.S. senator would require approval from the highest ranks of the Justice Department and is a step that would not be taken lightly. Kerri Kupec, a Justice Department spokeswoman, declined to comment.

A second law enforcement official said FBI agents served a warrant in recent days on Apple to obtain information from Burr’s iCloud account and said agents used data obtained from the California-based company as part of the evidence used to obtain the warrant for the senator’s phone.

Burr sold a significant percentage of his stock portfolio in 33 different transactions on Feb. 13, just as his committee was receiving daily coronavirus briefings and a week before the stock market declined sharply. Much of the stock was invested in businesses that in subsequent weeks were hit hard by the plunging market.

Burr and other senators received briefings from U.S. public health officials before the stock sales.

A spokesperson for the FBI did not return phone messages seeking comment. A spokeswoman for Burr declined to comment. Burr has said he does not plan to run for reelection in 2022.

Burr’s sell-off — which was publicly disclosed in ranges — amounted to between $628,000 and $1.72 million.

The stock trades were first reported by the Center for Responsive Politics and ProPublica.

After the sales became public, Burr said that he would ask the Senate Ethics Committee to review them.

Burr is not the only senator who has come under fire for dumping stock as the virus neared the United States.

In late February and early March, Sen. Kelly Loeffler (R-Ga.) sold stocks valued at between $1.25 million and $3.1 million in companies that later dropped significantly, including ExxonMobil. She also bought shares in Citrix, which makes telework software.

Loeffler, who was appointed to her seat to fill a vacancy and faces an election later this year, said after the sales became public that she and her husband would divest all individual stocks.

Burr, a longtime supporter of federal programs responsible for dealing with a pandemic, sits on two Senate committees that got early briefings on the coronavirus — the Intelligence Committee and the Senate committee that handles health issues.

The health committee received a briefing on the virus on Feb. 12, one day before his stock trades.

The same day Burr sold his stocks, Burr’s brother-in-law, Gerald Fauth, sold between $97,000 and $280,000 worth of six stocks, according to documents filed with the Office of Government Ethics.

Fauth serves on the National Mediation Board, which provides mediation for labor disputes in the aviation and rail industries.

Burr has denied coordinating trading with his brother-in-law.

In 2012, Congress prohibited lawmakers from acting on intelligence they learn because of their privileged position, such as briefings with high-level federal officials.

Under the STOCK Act, lawmakers are required to disclose their stock market activity but are still allowed to own stock, even in industries they might oversee.

The law passed the Senate in 2012 in a 96-3 vote. Among the three senators to oppose the bill was Burr.

SEC Obtains Court Order to Enforce Investigative Subpoena for Testimony

Litigation Release No. 25261 / November 10, 2021

Securities and Exchange Commission v. Fauth

(1:21-mc-00787)

District Court, S.D. New York

OCT 22, 2021 | REPUBLISHED BY LIT: MAR 19, 2022

Earlier today, the Hon. Andrew L. Carter Jr., United States District Judge for the Southern District of New York, granted the Securities and Exchange Commission‘s application to enforce a subpoena for testimony issued to Gerald Fauth, directing Fauth to comply with the subpoena.

If a person or entity refuses to comply with a subpoena issued by SEC enforcement staff pursuant to a formal order of investigation, the Commission may file a subpoena enforcement action in federal district court seeking an order compelling compliance.

According to the SEC’s filing, the SEC is investigating whether certain individuals, including Mr. Fauth and his brother-in-law, U.S. Senator Richard Burr of North Carolina, may have violated the antifraud provisions of the federal securities laws, including the STOCK Act, by engaging in unlawful insider trading.

The filing states that the SEC’s investigation shows that on February 13, 2020, Senator Burr sold more than $1.6 million worth of stock held in a brokerage account he owned jointly with his wife while in possession of potentially material nonpublic information concerning COVID-19 and its potential impact on the U.S. and global economies.

The filing further states that, shortly after placing his trade, Senator Burr placed a call to Mr. Fauth, who one minute later placed a call to his own broker to sell certain stocks held in an account in his wife’s name.

As stated in the filing, SEC staff served Fauth with an investigative subpoena in May 2020 seeking his testimony.

According to the filing, however, Fauth failed to comply and provide investigative testimony, citing health concerns, while continuing to fully perform his job duties as Chair of the National Mediation Board, a federal agency.

The SEC’s application sought an order from the court directing Fauth to show cause why the court should not compel him to appear for testimony as required by the subpoena and sought an order from the court, following its ruling on the order to show cause, directing Fauth to comply fully with the subpoena.

The court ordered Fauth to appear for a testimony session subject to certain conditions agreed to by the Enforcement Division staff.

The SEC is continuing its fact-finding investigation and, to date, has not concluded that any individual or entity has violated the federal securities laws.

The SEC’s investigation is being conducted by Tejal D. Shah, Nancy A. Brown, John O. Enright, and Sheldon L. Pollock of the SEC’s New York Regional Office, and is being supervised by Sanjay Wadhwa and Richard R. Best.