Lumbard, Chief Judge, and Danaher*fn* and Anderson, Circuit Judges. Danaher, Senior Circuit Judge (concurring in remand).
On July 27, 1967, the Securities and Exchange Commission ordered an investigation of the Wall Street Transcript Corp., pursuant to § 209(a) of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-9(a), to determine whether it was acting as an investment adviser in violation of § 203 of that Act, 15 U.S.C. § 80b-3, the registration provision. This action resulted, not from any specific complaint received,*fn1 but from a staff report concerning the nature of the appellee's publication, The Wall Street Transcript, issued weekly in a newspaper format,*fn2 and the advertising used in its sale to the public.*fn3
The Transcript's principal operating officer, Richard A. Holman, appeared at a hearing July 29, 1968, in response to the Commission's subpoena duces tecum. On the advice of counsel, Holman refused to produce any documents or answer any questions whatsoever other than to state his name, addresses, and telephone numbers. The Commission then applied to the district court pursuant to § 209(c) of the Act for enforcement of its subpoena, which called for the production of certain advertising materials and correspondence with subscribers, prospective subscribers, and suppliers of securities reports published in the Transcript.*fn4
The court below refused enforcement, SEC v. Wall Street Transcript Corp., 294 F. Supp. 298 (S.D.N.Y.1968). It concluded that the Transcript is a "bona fide newspaper" or "financial publication of general and regular circulation" which is expressly excluded from the definition of "investment adviser" by § 202(a)(11)(D) of the Act itself, 15 U.S.C. § 80b-2(a)(11)(D),*fn5 and therefore need not register. It held that under the circumstances of this case the court, rather than the administrative agency, was the proper body to make the initial determination concerning the question of exclusion from coverage by the Act:
"Where, as here, a publisher which presumptively is entitled to the protection of the First Amendment can make virtually an unrebutted showing that it is a bona fide newspaper and financial publication, a federal court should stay the hand of the investigating agency. An entirely different question would be presented if the SEC had complaints or other evidence of conduct by the publisher outside the normal functions of compiling and distributing an excluded publication." 294 F. Supp. at 307.
Since the district court's opinion also contained a reference to the "all-encompassing nature of the subpoena sought," the SEC asked for a "reargument or clarification" to determine whether a more limited subpoena or one with protective provisions might be enforced. The court concluded that these arguments were "clearly answered" by its original opinion, which had interpreted the Act to mandate exclusion of the Transcript from coverage or even investigation in the absence of some evidence of non-newspaper-like conduct.
As the court below recognized, it has long been established that the question of the inclusion of a particular person or entity within the coverage of a regulatory statute is generally for initial determination by an agency, subject to review on direct appeal, rather than for a district court whose jurisdiction is invoked to enforce an administrative subpoena. So long as an agency establishes that an investigation "will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within [its] possession, and that the administrative steps required * * * have been followed," no showing of probable cause need be made to the district court unless a statute indicates otherwise. United States v. Powell, 379 U.S. 48, 57-58, 85 S. Ct. 248, 255, 13 L. Ed. 2d 112 (1964); FTC v. Crafts, 355 U.S. 9, 78 S. Ct. 33, 2 L. Ed. 2d 23 (1957); Oklahoma Press Pub. Co. v. Walling, 327 U.S. 186, 66 S. Ct. 494, 90 L. Ed. 614, 166 A.L.R. 531 (1946); Endicott Johnson Corp. v. Perkins, 317 U.S. 501, 63 S. Ct. 339, 87 L. Ed. 424 (1943); 1 Davis, Administrative Law, § 3.12 (1958). If these criteria are satisfied, the court will order enforcement unless there is danger that its process may be abused. United States v. Powell, 379 U.S. at 58, 85 S. Ct. 248, 13 L. Ed. 2d 112.
Despite the absence of a finding that the subpoena was deficient in any of these respects, the district court felt that unique facts distinguish the instant case from this "substantial" line of precedents concerning initial determination of coverage by an agency. These circumstances were held to include not only the "virtually unrebutted showing" that the appellee qualified for a statutory exclusion, but also the fact that First Amendment considerations required a prompt court ruling upon coverage:
"In the case at bar, I reason that the Commission's broad inquiry under the Act can end only in restraint of expression by the Wall Street Transcript. If a newspaper operates under the threat of disclosure to a government agency of its news sources and subscribers' identities, for example, it will be cautious, to say the least, about what it prints. Its 'caution' will only increase when its advertisers become apprehensive and its subscribers become intimidated by government scrutiny. This is classic restraint of expression which needs no further elaboration here. Plainly, neither the First Amendment nor the powers conferred by Congress in the Act upon the SEC permit an inquiry which can only lead to such a restraint of expression by a newspaper." 294 F. Supp. at 304.
Detecting "the seeds of a constitutional controversy" in "the Commission's possible intention to apply the Act to what appears to be a bona fide newspaper," the court interpreted the statute to permit it to bar an investigation which it felt "goes to the jugular of the Transcript as a publishing firm." The Commission disputes this admittedly unprecedented interpretation and argues that the determination of "bona fide newspaper" status by the court was both premature and incorrect. The appellee argues, on the other hand, that not only the statute but the First Amendment as well bars enforcement of the subpoena.
As the Supreme Court has stated, "The Investment Advisers Act of 1940 was the last in a series of Acts designed to eliminate certain abuses in the securities industry, abuses which were found to have contributed to the stock market crash of 1929 and the depression of the 1930's." SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 186, 84 S. Ct. 275, 280, 11 L. Ed. 2d 237 (1963). The Act's general objective, as summarized by the Senate Report upon the bill amending it in 1960, is "to protect the public and investors against malpractices by persons paid for advising others about securities." 1960 U.S.Code, Cong. & Admin.News p. 3503. It "reflects a congressional recognition 'of the delicate fiduciary nature of an investment advisory relationship,' as well as a congressional intent to eliminate, or at least to expose, all conflicts of interest which might incline an investment adviser -- consciously or unconsciously -- to render advice which was not disinterested." SEC v. Capital Gains Research Bureau, supra, at 191-192, 84 S. Ct. at 282. (Footnote omitted.)
The core of the Act is its registration provision, § 203, which renders it unlawful for a non-registered investment adviser to make use of the mails or any instrumentality of interstate commerce in connection with his business. In addition, substantive provisions contained in §§ 205, 206 and 207 of the Act are designed to eliminate several specific practices labelled as abuses found to have existed at the time of the law's enactment. See, e.g., SEC v. Capital Gains Research Bureau, Inc., supra ; Marketlines, Inc. v. SEC, 384 F.2d 264 (2 Cir. 1967); see also Loomis, The Securities Exchange Act of 1934 and the Investment Advisers Act of 1940, 28 Geo. Wash.L.Rev. 214, 244-245 (1959); 1960 U.S.Code, Cong. & Admin.News p. 3503.
The definition of "investment adviser" given in the Act, § 202(a) (11), 15 U.S.C. § 80b-2(a) (11), is broad and comprehensive but is followed by a series of exclusions, (A) through (F), of which (D) is "the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation."*fn6 In the absence of any legislative history which would shed light upon congressional intent in adding this newspaper exclusion or which might affect the scope of the definition, itself,*fn7 the court below concluded that this exclusionary clause was simply a recognition "that Congress was aware that it could not lawfully command or authorize regulation and licensing by the SEC of bona fide newspapers in the light of the teaching of the First Amendment." 294 F. Supp. at 307. Thus the district court and the parties before us have interpreted the adjective "bona fide" to mean that the SEC may investigate only such newspapers as are engaged in the activities of an investment adviser and which do not have "all the usual indicia of a newspaper as that term is generally understood by the public and is normally used to indicate an entity protected by the free press clause of the First Amendment." 294 F. Supp. at 306. The case has been presented as if the sole determinative issue were the number of "the usual indicia of a newspaper" the Transcript possesses, and the district court based its holding largely upon the size of the bundle of such characteristics.*fn8
We do not think, however, that this is what Congress had in mind when it placed "bona fide" newspapers among the exclusions from the statute's coverage. Section 202(a)(11) of the Act lists a number of examples of persons or entities whose activities might fall within the broad definition of "investment adviser" but whose customary practices would not place them in the special, otherwise unregulated, fiduciary role for which the law established standards. Cf. SEC v. Capital Gains Research Bureau, Inc., supra. The phrase "bona fide" newspapers, in the context of this list, means those publications which do not deviate from customary newspaper activities to such an extent that there is a likelihood that the wrongdoing which the Act was designed to prevent has occurred.*fn9 The determination of whether or not a given publication fits within this exclusion must depend upon the nature of its practices rather than upon the purely formal "indicia of a newspaper" which it exhibits on its face and in the size and nature of its subscription list.*fn10
It seems to us that the Transcript does not necessarily fit within this exclusion. Most of its published material consists of reprinted reports assessing various securities issues. The exhibits furnished to the court all devote nearly one-half of the front page and part of the second to an index to the contents which lists various companies by name. Each issue contains a similar cumulative index covering some extended period of time. This characteristic emphasis on particular issues and companies at the very least raises doubt about whether the Transcript is outside the exclusion -- a suspicion which we believe that the S.E.C. should be allowed to investigate.
The parties implicitly recognized the importance of discussing the publication's practices in the "indicia" which they stressed during oral argument as the attempt to define the "usual" newspaper grew more elaborate: for example,*fn11 that the Transcript is not paid for its circulation of material by the brokerage houses whose reports it publishes, and that it determines the location of various articles in a particular issue upon the basis of its editor's news judgment alone. The truth of this assertion would be highly relevant to a determination of whether or not a publisher expects to induce readers to act directly upon certain investment advice; but whether or not it is so cannot be ascertained from a copy of the publication itself. It is immaterial to the principal issue in this case whether or not the "usual newspaper" is paid for using the news items which it publishes, if they are not offered as investment advice. What matters is whether or not a specific publication is engaged in practices which the Act was intended to regulate, such as the offering of professional investment advice without revealing the possibility of personal gain to the publisher from what he reports or how he presents it. See SEC v. Capital Gains Research Bureau, Inc., supra.
Nor can it be determined from its face that the Transcript is a "bona fide newspaper" within the meaning of this Act simply because, as the appellee suggests, it publishes financial "information." Any investment adviser, including one engaged in the most nefarious of practices, offers "information" to his clients; and any such adviser might choose to present it in the guise of traditional newspaper format. The type of printing and paper used, the employment of a certain number of reporters, the hiring of wire services, and the fact that "information" is offered and circulated generally would not necessarily reveal anything about the commercial practices involved or the financial interests served in its publication. It would be totally inconsistent with the purpose of the Act to hold that the exclusion would permit an unscrupulous operator to forestall investigation by arguing at a subpoena enforcement proceeding that his publication had enough of ...