Before setting out the facts in detail, and then discussing the legal and judgmental considerations, I would like to make three preliminary observations.

First, the statement of fact is based largely on file memorandums, those of Mr. Fred Goldsmith, the Commission's security officer, in particular. My own direct participation in the action was limited; and, where I did participate, I simply do not recall all the details. We are reconstructing history that goes back more than 2 years, to a time only 4 months after I joined the Commission. But I have no reason to believe there are any gaps in the record. The file memorandums are very detailed, and I assume they are accurate. As you know, Mr. Chairman, the complete file has already been provided to the subcommittee.

Second, in the factual statement I will refer simply to "the employee,” “the outsider” and “the witness." I do so as a matter of fairness. The investigation did not turn up conclusive evidence to substantiate the initial eyewitness account that the employee and the outside attorney were leaking confidential information. It seems only right that they not be publicly identified at this late date.

Third and finally, I want to set the problem and the specific occurrence in a broader context. The problem of leaks has long plagued the Commission, and I want to make it clear I am not referring to the wholly proper and necessary publication of information about Commission processes and actions. I am prepared to stack our public information program against that of any other department or agency in Washington.

What I am referring to are leaks about pending matters--many of an adjudicatory nature-preliminary staff recommendations and draft rulings. Such information must be kept confidential. Leaks are usually fragmentary and highly misleading. They can in some situations have a profound impact on the securities markets and on investment decisions. They can be disruptive of the Commission's orderly decisionmaking processes in much the same manner, Mr. Chairman, as leaks about executive sessions of the committees of Congress or about draft opinions of the Federal courts. In the case of the Commission, which is both a quasi-legislative and a quasi-judicial body, leaks can and do bring our processes into disrespect with the parties appearing before us and with the public at large.

For the past two decades, the Commission has sought in many ways to stem the leaks-for the most part insuccessfully. It has tried marked, numbered copies of documents. It has sought expert advice from the FBI. As early as December 3, 1966, President Johnson stressed the importance of safeguarding confidential material in a memorandum to all department and agency heads. I submit copy of that memorandum for the record, Mr. Chairman, as exhibit "A." In the 1963–69 period—before I joined the Commission-an especially intensive campaign against leaks was mounted. In 1968, the Commission began stamping the phrase "For Official Use Only," on all agenda material and limited the distribution of this material within the Commission. In January, 1969 it adopted with the approval of the Civil Service Commission a rule revision--sections 19.735–206—to make the prohibition against wauthorized disclosure as clear as possible. I submit a copy of that rule for the record as exhibit B. In February of 1969 the Commission distributed to all personnel a memorandum stressing the need to safeguard agenda material. I submit a copy of the memorandum as exhibit C.

In March, 1969 my predecessor, Chairman Hyde, was closely questioned by Senator Hart of Michigan during Senate Hearings on FCC policy matters, on the entire matter of internal security at the Commission. I typical question was the following:

It is my impression that there have been problems of security at the Federal Communications Commission. Specifically, information about Commission votes and pending matters seems to get into the hands of select members of the Communications Bar and the trade press. What steps have been taken to solve this problem?

And, as you will recall, Mr. Chairman, at about this same timeApril 1, 1969-you, yourself introduced H.R. 9795—"A bill to amend title 18 of the United States Code so as to prohibit the wrongful disclosure of certain confidential agency decisions and rulings." Your bill addressed in particular the possible impact of leaks on the securities markets.

With this as background, I came on board November 1, 1969. In line with my responsibility as the Commission's Chief Executive Officer, I was determined to find effective remedies for this serious situation. I turn noir to the facts of the matter in question.

On February 3, 1970. a Commission employee-hereafter "the witness"---reported to Mr. Goldsmith that agenda material was being made available to an outside attorney by another Commission employee. The witness told Mr. Goldsmith that he observed bu fl-colored agenda documents—which is the distinctively-colored paper on which only agenda material is printed--with the notation “For Oficial Use Only," on a front secretarial desk; that the outsider, a former Commission staff lawyer, was making almost routine visits to the employee's office in the late afternoon-after the Commission's normal 4:30 p.m. closing time, and that in the period January 26 through 30, 1970, he observed the employee and the outsider going through the agenda documents on the desk. The witness also stated that occasionally he observed the outsider using the office telephone with what appeared to be a renda material before him.

On February 10, the witness observed and reported what he thought was an effort by the employee to make copies of agenda material during one of the outsider's visits--an unsuccessful effort because the duplicating room was closed for the day. The witness stated that on the morning of February 12, the day after a regular Commission meeting, he overheard a conversation between the employee and the outsider while they appeared to be looking over agenda documents-in which such expressions were used as "Was this item passed over?" or "Did it get called"? In a statement to Mr. Goldsmith, the witness summed up by stating that agenda material was not properly safeguarded; that he had observed the employee and the outsider leafing through agenda items; and that "discussions have taken place over some of these items as they passed from page to page."

Through his own independent observations, Mr. Goldsmith confirmed that agenda material was being left openly and improperly on the desk in question. He then sought to verify the other and more serious charges against the employee-keeping in mind that any investigative technique would have to consider the employee's somewhat precarious health.

Because the outsider's visits generally occurred after normal Commission working hours, observation by other Commission personnel would have been most difficult. Furthermore, because the employee's office was, in effect, an office within an office, it could not be kept under direct surveillance.

Thus, Mr. Goldsmith concluded that one effective way, perhaps the only way to check on the accuracy of the witness' report, was to establish whether the outsider was using the Commission's telephone for the conveyance of official and confidential information.

Mr. Goldsmith therefore proposed to the Executive Director, Mr. Max Paglin, that an extension be installed on the employee's office phone, with such extension available to Mr. Goldsmith to monitor the reported after-hours use by the outsider.

On February 12, 1970, Mr. Paglin briefed me on the situation and received my approval, subject to checking with the General Counsel, to proceed with the investigation and to use the telephone extension method if that were found necessary. The feasibility of utilizing this method was discussed by Mr. Goldsmith with a representative of the Chesapeake & Potomac Telephone Co. on February 13, 1970. He found that such an extension could in fact be installed.

On February 16, 1970, Mr. Paglin and Mr. Goldsmith met with the Commission's General Counsel at that time, Mr. Henry Geller. Mr. Geller was briefed on the matter and his advice was requested as to the proposed installation for the purpose of ascertaining whether or not Commission phones were being misused-for other than official business or by non-Commission personnel. Mr. Geller indicated that this practice was in effect in the private business sector, as well as in certain Government offices, and he had no objection to its use in the given circumstances.

On the next day, February 17, C. & P. personnel installed the extension, with the instrument placed in Mr. Goldsmith's office. It was an extension of the three numbers that could be used in the employee's office on another floor of the Commission building. Mr. Harry Shockro who, as Chief of the Administrative Services Division was advised by Mr. Goldsmith of the installation, states that he brought the matter to my attention on February 18, to be sure that Mr. Goldsmith's activities were authorized. I confess, Mr. Chairman, that I do not recall this conversation at all, but I have no reason to question Mr. Shockro's statement and I accept it as fact.

Monitoring was done by Mr. Goldsmith, but it was difficult to pinpoint the outsider's presence in the employee's office. No facts relevant to the inquiry were developed by this means.

An incident then occurred involving the employee's Bureau Chief and this affected the office relationship between the employee and the outsider. The witness apparently repeated to the Bureau Chief the information he had previously reported to Mr. Goldsmith. As a consequence, on March 16, 1970, the Bureau Chief visited the employee's office after normal Commission working hours and found the outsider using the phone. He also noted that agenda documents were openly displayed and to use his words, he “scolded” the employee about this unauthorized practice. The Bureau Chief then brought the matter to the attention of the employee's immediate supervisor who stated that he would make certain that such confidential material was kept secured in the future.

In view of this development, and because no facts of significance had been learned by means of the extension during the 21 working days it had been available, Mr. Goldsmith ordered it removed. This was done on March 20, 1970.

In an effort to avoid disclosure of the investigation-again in fairness to the persons involved, it was arranged to have C. & P. in fact bill the security officer directly for this service, rather than including these charges with the company's regular billing.

The facts remaining are these. With my permission, Mr. Goldsmith and a representative of the General Counsel's office, Mr. Edwin Schaefer, interviewed the employee on April 3, 1970. He denied ever having furnished agenda material to the outsider. When asked to comment on information that the outsider had been observed reading such material and using the phone with it before him, the employee stated that he would have been preoccupied with his own work, much of it piled high on his desk, and in no position to observe what was going on at the next desk. Ile also stated that, because of a sudden stomach upset, he had once left the office with the outsider remaining there. As for the use of the office telephone, the employee again stated that he had been busy with his own work and not certain about the outsider's particular actions; he did recall the outsider might have phoned his own office "once or twice" and that he might have made a long distance call on one occasion, early in 1970 or late in 1969.

Interviews with clerical personnel established that agenda documents had in fact been left unsecured on the desk.

The outsider was also interviewed but, because he had been hospitalized during this period, not until July 1, 1970. He stated his visits to the Commission had been social and, although he recalled having seen agenda documents in the office, he denied ever looking at them. He used the phone on some occasions but never, he stated, to relay any information that he might have learned from the employee.

Mr. Goldsmith concluded that no further information could be obtained and that, on the basis of the full record, it was inconclusive as to any culpability of the persons involved. He advised the Executive Director that, because the matter had been brought to both the employee's and the outsider's attention and they had been put on notice of what was expected of them in their conduct at the Commission, he believed the matter should be considered closed.

I believe, Mr. Chairman, that these are the essential facts. The file memorandums constitute the complete record-and, as I have already noted, this file has been made available to the subcommittee.

I realize that a threshold question is the legality of the monitoring technique employed in this action. The General Counsel then, Mr. Geller, gave it as his opinion there was no legal objection. I might also note that the action was initially brought to my attention by Mr. Paglin who was himself a former general counsel. The Commission's present General Counsel, Mr. Pettit, has researched the matter and prepared a memorandum that I will submit as exhibit D. The memorandum in fact concludes in essence that the action in question was lawful in the particular circumstances-a conclusion supported by the legislative history.

But lawful or not-and that is a point on which I did not then focusI am fully aware that my approval of the recommended action should be judged on whether it was sound and reasonable. That was and remains my overriding responsibility.

I believe that the judgment was reasonable, for the following reasons:

(1) The Commission was, in 1969 and early 1970 and in fact today, engaged in an intensive campaign against a continuing problem of leaks of confidential agenda material. The charge against the employee was a most serious one. There had been a clear failure to safeguard agenda documents in violation of specific Commission regulations and, according to eye-witness observation, there might have been unauthorized use of this material by an outside attorney. Let me stress that I was informed this was the first time that an eyewitness had come forward.

(2) One reasonable and appropriate way to test this observation was to ascertain whether the outsider was in fact talking about agenda material when he used the Commission's telephone in the employee's office, with the agenda material before him. The experienced staff members with responsibility to advise me in this matter put forward the extension phone technique and I believe this fact has obvious bearing on the reasonableness of my judgment.

(3) The outsider was making use of the Commission's own business telephones. These phones are provided to conduct official business. Clearly, they are not to be used by anyone to violate Commission rules and policies.

(4) Given all the particular circumstances, it certainly seemed to me reasonable to use this technique, in order to substantiate the eyewitness account of possible rule violation. It did not seem to me that, in these circumstances, an outsider had any right not to have his calls monitored and his conversations overheard on a Commission extension.

Finally, Mr. Chairman, let me stress that this action was unique. So far as I can determine—and I have checked with all senior staff, past and present-this is the only incident of its kind. We do not monitor incoming or outgoing phone calls, either by a mechanical device or by the covert use of any third person on the line. It is contrary to Commission policy to do so and I would like to submit for the record two documents that are pertinent to this--the 1961 Administrative Order 12—exhibit E-of which I was frankly unaware in February and March of 1970, and a letter dated September 8, 1970 to John E. Moss chairman of a subcomittee of the House Committee on Government Operations-exhibit F.

The question arises as to why we did not inform Congressman Moss and his committee of this singular monitoring incident when we responded to their June 1970, inquiry. There was not the slightest intent to conceal anything, Mr. Chairman. I simply cannot recapture what was in my own mind at the time but I certainly did not focus on the incident when I signed the letter prepared by Mr. Jensen in the General Counsel's office. We were focusing on the general question of the practice of monitoring telephone conversations by either a me

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