A congressional subcommittee has asked John Fedders, the head of the Securities and Exchange Commission's enforcement division, to testify about his role in a case involving a questionable corporate payment and possible cover-up.
Before he joined the SEC, Fedders, then with the firm of Arnold & Porter, represented a company that was the subject of a grand jury investigation into whether it illegally concealed a $96,500 payment.
The probe came to light in an opinion by the Second Circuit U.S. Court of Appeals last March, in which the company was identified only as "John Doe Corporation."
Fedders appeared June 23 before a closed-door session of a House Energy and Commerce subcommittee with oversight authority over the SEC.
But the subcommittee, headed by Rep. John D. Dingell (D-Mich.), did not question Fedders because he was not accompanied by his lawyer, according to the National Law Journal, which reported the subcommittee's inquiry in its Monday issue.
The National Law Journal said the subcommittee intends to hold another closed session at which it will question Fedders.
But the subcommittee and Fedders appear to be headed for a showdown over whether he will testify about his work for the company.
Fedders' lawyer, Nathan Lewin, said that the attorney-client privilege would prevent Fedders from testifying on the matter unless the company specifically waived the privilege.
In a letter to the committee June 22, Fedders said he would "repectfully decline to respond to questions" about the case. But the subcommittee contends that the attorney-client privilege doesn't apply before a congressional committee, and that Fedders should therefore answer its questions..
The company agreed to waive the privilege before the grand jury, and Fedders was questioned by federal prosecutors May 18 and testified before the grand jury June 24, Lewin said.
The National Law Journal also reported that Southland Corp., the Dallas-based parent company of the 7-Eleven convenience store chain, is the company that is the target of the grand jury probe.
The opinion said that the grand jury was investigating a $96,500 payment the company made in 1977 to a "politically active lawyer holding elective office." The court said it found "probable cause to believe the payment to the lawyer was part of a criminal scheme to bribe a public official(s)" and probable cause as well to believe that an internal company audit was "used to conceal the criminal scheme." The National Law Journal identified the lawyer as a former New York City councilman.
Fedders helped the company conduct an investigation that identified the payment. The company's final report did not mention the payment.
"I am not embarrassed by what I did as an attorney prior to joining the commission, including my representation of John Doe Corporation," Fedders wrote to the subcommittee.
Fedders could not be reached for comment yesterday. But Lewin said that his client had "cooperated totally" with the government investigation. The prosecutors, he said, "have consistently indicated to me that John Fedders had not done anything wrong and they were asking him only as a witness."
Lewin said he saw two possible conflict of interest questions regarding Fedders' work for John Doe Corp. One question is whether Fedders, before joining the SEC, should have told the agency about his representation of the company, which had been asked by the SEC to conduct the disputed audit. Lewin said the grand jury investigation was not a matter pending at the SEC and therefore did not have to be disclosed to the agency.
A second issue is whether, if Fedders became aware at some point that his client had violated the law, he had a conflict of interest in continuing to represent the company because of the possibility he might be called as a witness in later proceedings. Lewin said that Fedders did not have to stop representing the company because he did not believe it had broken the law.
As a result, Lewin said, Fedders had no conflict of interest on either matter.