Court Rejects Challenges to SEC Subpoenas

The Eleventh Circuit rejected jurisdictional and relevance challenges to SEC subpoenas in SEC v. Marin, 982 F.3d 1341 (11th Cir. 2020).

The SEC issued subpoenas to Carla Marin and MinTrade Technologies pursuant to a formal order of investigation (“FOI”) authorizing the Commission to investigate whether a Tampa-based limited liability company called Traders Café, and its “officers, directors, employees, partners, subsidiaries, and/or affiliates, or other persons or entities,” had engaged, or were about to be engaged in, unregistered broker-dealer conduct in violation of Section 15(a) of the Securities Exchange Act of 1934. The Commission’s investigation of Traders Café led it to a Bahamian-registered company, SureTrader (at which Traders Café maintained a master account), and then to Marin and MinTrade, both of which had connections to SureTrader and/or SureTrader’s principal.

After Marin and MinTrade resisted complying with the subpoenas, the SEC applied to the federal district court in Miami for orders to show cause why Marin and MinTrade should not comply. At a hearing on Marin’s motion, an SEC witness testified that the information sought by the subpoenas was “critical and necessary for the ongoing investigation,” and explained the connections between Marin, Mint Custody, and the Traders Café investigation. The SEC also submitted a declaration in support of its subpoena to MinTrade, which was subsequently filed in that case. A magistrate judge recommended that the subpoenas be enforced, the district court adopted the recommendations, and Marin and MinTrade appealed. 

The Eleventh Circuit, in an opinion written by Judge Marcus and joined by Chief Judge William Pryor and by Judge Hull, affirmed. The court first considered the claim by Marin, a resident of New York, that the federal district court in Miami lacked personal jurisdiction over her. Because the statutory basis for personal jurisdiction was a federal statute (15 U.S.C. § 78u(c)), the jurisdictional question was whether Marin had purposely established minimum contacts with the United States, not the State of Florida. Marin, a New York resident, easily met that standard, and could establish no “constitutionally significant inconvenience” in litigating the matter in Miami.

The court also found no abuse of discretion in the district court’s determination that the SEC’s subpoenas met the four criteria set forth in United States v. Powell, 379 U.S. 48 (1964): that the investigation be conducted pursuant to a legitimate purpose; that the inquiry may be relevant to that purpose; that the information sought is not already in the agency’s possession; and that the required administrative steps have been followed. Marin and MinTrate challenged the SEC’s compliance with the first and second factors, claiming the subpoenas to them were outside the scope of the FOI concerning Traders Café. The court disagreed, noting that “[t]he SEC’s investigatory power is analogous to the power of a grand jury,” and is not limited to the entities specifically named in a particular FOI. Indeed, the court added, the FOI for the Traders Café investigation referred to existing or imminent violations by Traders Café, its officers, employees, etc., “or other persons or entities,” including SureTrader and its principal. And the conduct for which the SEC was investigating SureTrader was the same conduct mentioned in the FOI—unregistered broker-dealer activity. The court also rejected the argument that the FOI was invalid because it had been issued more than five years ago, beyond the limitations period for the SEC to bring an action for civil monetary penalties. “[T]hat a statute of limitations might bar some enforcement actions related to an FOI does not render the FOI invalid,” the court observed—especially given that at least some potential enforcement actions for injunctive relief would not be subject to the five-year limitations period. 

Finally, the court rejected the claim that the district court was required to hold an evidentiary hearing before granting the SEC’s application. “Administrative subpoena enforcement proceedings are ‘summary in nature,’” and once the agency has established by affidavit its compliance with the Powell criteria, the burden shifts to the other party to prove non-compliance. In the absence of specific evidence undercutting the SEC’s prima facie showing here, the district court acted within its broad discretion in requiring compliance with the subpoenas.

Posted by Valerie Sanders.

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