The opinion of the court was delivered by: David H. Bartick United States Magistrate Judge
ORDER DENYING MOTION TO QUASH SUBPOENA [ECF No. 1]
On June 28, 2012, Movants Paul Tabet and Jenifer Tabet ("Movants")filed a Motion for Order Pursuant to Customer Challenge Provisions of the Right to Financial Privacy Act of 1978, 12 U.S.C. § 3410. (ECF No. 1.) Movants seek an order preventing the U.S. Securities and Exchange Commission ("SEC") from obtaining access to their personal financial records. On July 30, 2012, the SEC filed a verified Opposition to the motion. (ECF No. 3.) Having considered the parties' submissions and supporting exhibits, the Court DENIES the motion.
On February 7, 2012, the SEC issued a formal order of investigation, In the Matter of Certain Trading in Facebook, Inc. NY-08741 ("Formal Order"). The SEC is investigating whether certain persons or entities have violated, or are violating, federal securities laws by making false and misleading statements to investors, or otherwise engaging in fraudulent conduct, in connection with the offer and sale of pre-initial public offering ("pre-IPO") shares of Facebook, Inc. The SEC proffers that through its investigation, it has obtained evidence that Movants may have been involved in the alleged violations. Specifically, the SEC is investigating whether Movant Paul Tabet, and others, unlawfully offered and sold interests in Ventures Trust II, LLC and related "Ventures Trust" entities (collectively "Ventures Trust"). The SEC is also investigating whether Movants misused investor money for personal purposes.
According to the SEC, Ventures Trust is purportedly engaged in the business of raising funds to invest in the purchase of pre-IPO shares of Facebook and possibly other internet companies. Paul Tabet is a managing member of Ventures Trust. The SEC states it has obtained evidence that Paul Tabet and others raised at least $3 million dollars from investors by selling interests in Ventures Trust entities over the past few years. The SEC states investors were told that Ventures Trust already owned, or would use investor funds to purchase, pre-IPO shares of Facebook and other companies. The SEC is investigating whether, in fact, that occurred. The SEC has obtained evidence that a forged letter was used to solicit investors and that Movant Paul Tabet emailed the forged letter to at least one potential investor. The SEC alleges the evidence obtained so far indicates investor funds may have been misused for personal purposes by Movants. There is evidence that in 2010 and 2011, Paul Tabet withdrew over $1 million dollars from Ventures Trust bank accounts and that $23,000 was transferred to Movant Jenifer Tabet's Bank of America bank account. The SEC also alleges Ventures Trust may have misused investor money to pay personal expenses and debts of individuals associated with Ventures Trust. Some of the debts appear to have been incurred before 2010 and possibly as long ago as 2004.
As part of its investigation, the SEC sought Movants' bank records through an administrative subpoena. On June 14, 2012, the SEC issued two subpoenas to Bank of America, one for Paul Tabet's bank records and one for Jenifer Tabet's bank records. On June 14, 2012, the SEC also sent Movants a certified letter informing each of them that it intended to subpoena their financial records from Bank of America. The subpoenas request account opening records, account statements, checks, wire transfers, signature cards, and other records, for the time period from January 1, 2009 to present.
On June 28, 2012, Movants timely moved to quash the subpoenas. See 12 U.S.C. § 3410(a) (requiring a motion to quash an administrative subpoena or summons to be filed within ten days of service or fourteen days of mailing.) Movants contend the financial records sought are not relevant to a legitimate law enforcement inquiry, that the subpoena is overbroad, oppressive, lacks particularity, and that the request amounts to a warrantless search and seizure under the Fourth Amendment. (ECF No. 1.) Movant Paul Tabet also argues there has not been substantial compliance with the Right to Financial Privacy Act because the SEC has issued subpoenas to one or more affiliated entities without any notice to Movants.
On July 2, 2012, the Court ordered the SEC to respond to the motion to quash. (ECF No. 2.) On July 30, 2012 the SEC filed its verified opposition. (ECF No. 3.)
Under the Right to Financial Privacy Act ("RFPA"), 12 U.S.C. § 3401 et seq., a financial institution may disclose a customer's financial records if such records are properly requested by a governmental authority via an administrative subpoena or judicial subpoena. 12 U.S.C. § 3402(2) and (4). If a customer objects to the disclosure of their records, the customer must file a motion to quash the subpoena that includes an affidavit or sworn statement, and timely serve the government entity with the motion. 12 U.S.C. § 3410(a); see also S.E.C. v. Jerry T. O'Brien, Inc., 467 U.S. 735, 745 (1984) (noting that "[a] customers's ability to challenge a subpoena [under the RFPA] is cabined by strict procedural requirements"). If the Court orders the government entity to respond to the motion to quash, the government must filed a sworn response. § 3410(b).
In ruling on the motion, the Court relies on the parties' sworn statements and any additional proceedings the Court finds appropriate. § 3410(b). The Court must deny the motion to quash if either the applicant is not a customer whose financial records are being requested or "there is a demonstrable reason to believe that the law enforcement inquiry is legitimate and a reasonable belief that the records sought are relevant to that inquiry." §3410(c); Rodriguez v. Fed. Sav. and Loan Ins. Corp., 712 F. Supp. 159, 162 (N.D. Cal. 1989). The government entity has the ultimate burden of showing that the records sought are relevant to a legitimate law enforcement inquiry. In re Blunden, 896 F.Supp. 996, 999 (C.D. Cal. 1995) (quoting Collins v. Commodity Futures Trading Comm., 737 F.Supp. 1467, 1480 (N.D. Ill. 1990). "For purposes of an administrative subpoena, the notion of relevancy is a broad one." Sandsend Fin. Consultants, Ltd v. Fed. Home Loan Bank Bd., 878 F.2d 875, 882 (5th Cir. 1989). Subpoenaed information is relevant if it "touches a matter under investigation." Id. See also United States v. Wilson, 571 F.Supp. 1417, 142 (S.D. N.Y. 1983) ("the RFPA requires only that financial information be relevant to a 'legitimate law enforcement inquiry,' and not relevant in a narrow, evidentiary sense."); S.E.C. v. Nicita, 2007 WL 1704585, *3 n.4 (S.D. Cal. June 13, 2007). An administrative agency with statutory authority to engage in investigative and accusatory duties may "investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not." U.S. v. Morton Salt Co., 338 U.S. 632, 642-42 (1950).
In ruling on the motion to quash, the Court must determine whether: (1) Movants are the customers whose financial records are being sought; (2) the law enforcement inquiry is legitimate; and (3) the records sought are relevant to the law enforcement inquiry. 12 U.S.C. § 3410(c).
First, Movants have standing to challenge the subpoena under the RFPA. Movants state in their sworn statements that they are customers of Bank of America whose bank records are being sought. (ECF ...