Securities and Exchange Commission v. Marin, Case No. 19:13990 (11th Cir. 2020), SEC Subpoenas Held Enforceable in this Day-Trading Investigation.

 In 2013, the SEC issued a formal order of investigation into the practices of Traders Café (among other entities), a day-trading entity.  The SEC believed it had information to show that the business may have engaged in unregistered broker-dealer conduct in violation of Section 15(a) of the 1934 Act. Carla Marin and MinTrade Technologies, LLC (MinTrade) each appealed district court orders directing them to comply with the Securities and Exchange Commission subpoenas for the production of documentary evidence and testimony.   They both challenged the enforcement of the subpoenas, claiming that the subpoenas were not relevant to a legitimate investigative purpose.  The Court rejected their arguments and enforced the subpoenas.

There are four requirements that an administrative agency, such as the SEC, must establish in order to obtain judicial enforcement of an administrative subpoena:

1. The investigation must be conducted pursuant to a legitimate purpose;
2. That the inquiry must be relevant to the legitimate investigative purpose;
3. The information sought is not already within the agency’s possession; and
4. The administrative steps required have been followed.

United States v. Powell, 379 U.S. 48, 57-58 (1964). 

Marin and MinTrade challenged the legitimate purpose of the subpoenas by disputing the scope and validity of the Formal Order of Investigation.  In short, they claimed that the SEC’s inquiry into entities other than just Traders Café was inappropriate (the SEC requested information into other entities owned by the defendants, SureTrader and Gentile). The Court found the defendants interpreted the FOI too narrowly.  The Court noted the FOI broadly directed that “a private investigation be made to determine whether any persons or entities have engaged in, or are about to engage in, any of the reported acts or practices [including unregistered broker-dealer activity] or any acts or practices of similar purport or object.”  In other words, the scope is broad.  Additionally, the Court noted that the SEC’s investigative powers are not limited to the specific entities named in the order. 

Additionally, Marin and MinTrade argued that a 2013 FOI was subject to a durational limit based upon 28 U.S.C. § 2462 which would invalidate the legitimacy of the subpoenas.  However, the Court ruled against these claims as well.  First, the Court ruled that § 2462 did not apply to the proceedings because SEC subpoenas are not self-enforcing, and the SEC only sought enforcement and not contempt.  Second, even if there are certain FOI statute of limitation issues, the relevant time is not from the issuance of the FOI but the timing of the violations which could have occurred after 2013. Therefore, the FOI was both valid and served a legitimate investigative purpose.  As such the subpoenas were enforceable.

Next, Marin and MinTrade argued that the subpoenas were too broad to at least some of their business entities.  The Court again dismissed this claim because the relevancy requirement for subpoenas is broad and only requires a prima facie showing.

In short, at least in the 11^th Circuit, administrative agencies like the SEC (or the IRS) have very broad authority to issue subpoenas in connection with their investigations.  As the Court notes, “[t]he measure of relevance used in [administrative] subpoena enforcement actions is quite broad” (quoting Fla. Azalea Specialists, 19 F. 3d at 624).  Additionally, the SEC “bears only a minimal burden of presenting a prima facie case that its subpoenas satisfy each Powell factor.”  Marin at *27.  Clearly, as evidenced by this opinion, the 11^th Circuit is hesitant to impede investigations into improper financial conduct conducted by the SEC.