Sunday, December 11, 2011

Senator Grassley Says Wells Notice Sent to Hedge Fund of Which He Had Requested Documents

Senator Charles Grassley (R-Iowa) noted in a public statement that a hedge fund invested in a wireless communications company, and of whom he had earlier requested all communications between the fund and the FCC, received a Wells Notice from the SEC. While this does not mean the SEC definitely will take action against the hedge fund, said Senator Grassley, it does show that the SEC staff believes there is sufficient evidence to consider recommending an enforcement action. He emphasized that the FCC is now faced with the real possibility that it made a multi-billion-dollar grant of valuable spectrum to someone who could be charged with violating securities laws.

A Wells Notice is an informal procedure used by the SEC to allow persons and firms under investigation for possible securities law violations to present their views to the Commission before an enforcement proceeding is authorized. These presentations are referred to as Wells Submissions, named for John A. Wells who headed the SEC’s 1972 Advisory Committee on Enforcement Policies and Practices.

In an earlier letter to the hedge fund seeking communications between the fund and the FCC, White House, or Department of Commerce, Senator Grassley, the Judiciary Committee’s Ranking Member, also requested records of all communications between firms or individuals retained by the fund to represent the fund before Federal agencies.

When responding to this request, the Senator asked the hedge fund to prioritize responses in the following two areas: 1) Communications and any records relating to communications regarding my document requests to the FCC; and 2) Communications and any records relating to communications regarding regulatory actions by the FCC.

The Senator noted that the company, which is majority owned by the hedge fund, took out an advertisement in most major newspapers styled as an open letter stating that, “there are still vast areas of the country without access to broadband.” According to Sen. Grassley, this creates the impression that the company plans to wire those areas for broadband. The company played on this theme before, he noted, when it created the “Empower Rural America Initiative” whose mission, in part, was to “create a substantial new resource for rural America in the form of a wireless network that reaches areas that still don’t have broadband access.” The FCC, however, has not required the company to wire a single rural American household and has only required it to meet a set of benchmarked targets culminating in a requirement that the company wire 260 million Americans by 2015.