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Gewerter v. Securities and Exchange Commission

United States District Court, D. Arizona

July 29, 2016

Harold P. Gewerter, Movant,
Securities and Exchange Commission, Respondent.


          Douglas L. Rayes United States District Judge

         Before the Court is Harold Gewerter’s Motion to Quash Subpoena. (Doc. 1.) The motion is fully briefed, and the Court heard oral argument on July 29, 2016. For the following reasons, Gewerter’s motion is denied.


         The Securities and Exchange Commission (SEC) has opened an investigation into four entities (Order Entities) believed to be engaging in securities fraud. (Doc. 4 at 3-4.) Because of suspicious similarities in the Order Entities’ Form S-1 Registration Statements, the SEC suspects that the Order Entities are failing to disclose or making materially false statements about their management and control persons. (Id. at 4.) For example, the Registration Statements include identical resumes for purportedly different control persons, and some information that is supposed to be entity-specific appears to have been copied verbatim between the Order Entities’ statements. (Id. at 4-5.)

         Gewerter, a Nevada attorney, filed the Registration Statements for the four Order Entities, and is listed as counsel on all of the Registration Statements. (Id. at 5-6.) Additionally, Gewerter filed a Registration Statement on behalf of a fifth entity, Stuart King Capital Corp. (Stuart King), which contains similarly suspicious entries. (Id. at 5.) The SEC has learned that some investment funds raised by Stuart King were deposited into one of Gewerter’s IOLTA Accounts. (Id. at 6.) The SEC Division of Corporate Finance instructed Gewerter that Stuart King is required to return these investment funds. (Id.) To the SEC’s knowledge, however, Stuart King has not done so. (Id.) Further, Gewerter appears to have deposited at least $22, 000 into and transferred at least $17, 000 from the IOLTA Account in connection with the Order Entities. (Id. at 7.) These transactions include payments to and from a third party that the SEC believes is an undisclosed control person of one or more of the Order Entities. (Id.)

         On April 25, 2016, the SEC issued a subpoena to Wells Fargo Bank for records associated with Gewerter’s IOLTA Account. (Id.; Doc. 1 at 18-22.) The SEC seeks to identify the source of the funds for payments made on behalf of the Order Entities, to trace the movements of any Stuart King investment funds, and to uncover other investment funds or other suspicious deposits associated with the Order Entities. (Doc. 4 at 7.)

         The SEC mailed a copy of the subpoena to Gewerter, along with instructions on how to challenge it. (Id. at 7-8.) These documents were delivered to Gewerter on April 26, 2016. (Id. at 8.) Gewerter contacted the SEC on May 5, 2016, and again on May 9, 2016. (Id.) He proposed that Wells Fargo be required to produce only checks relating to the Order Entities and suggested that he would provide the SEC with a list of other related transactions. (Id.) The SEC declined Gewerter’s proposal. (Id.) Consequently, on May 11, 2016, Gewerter filed the instant motion to quash. (Id.)


         The Right to Financial Privacy Act of 1978 (RFPA) provides “the sole judicial remedy available to a customer to oppose disclosure of financial records” pursuant to an administrative subpoena. 12 U.S.C. § 3410(e). RFPA requires a customer objecting to the production of bank records to file a motion to quash within fourteen days after the investigating agency mails the subpoena to the customer or within ten days after the customer is served with the subpoena. 12 U.S.C. § 3410(a). The court must deny the motion if “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[.]” 12 U.S.C. § 3410(c).


         Gewerter’s motion to quash is untimely. The SEC issued the subpoena on April 25, 2016 and sent Gewerter a copy that same day. Gewerter received the subpoena, along with instructions for challenging it, on April 26, 2016. He did not file his motion to quash, however, until May 11, 2016-fifteen days after he received the subpoena and sixteen days after it was mailed. Courts construe RFRA’s time limits as jurisdictional and strictly enforce them. Turner v. United States, 881 F.Supp. 449, 450-51 (D. Haw. 1995). Because Gewerter did not file his motion to quash within fourteen days after the SEC mailed it to him or ten days after he received it, the Court lacks subject matter jurisdiction over Gewerter’s motion.

         Even if Gewerter’s motion were timely, however, the Court would deny it because there is a demonstrable reason to believe that the SEC is conducting a legitimate law enforcement inquiry and a reasonable belief that the records sought are relevant to it.

         “An investigation is legitimate if it is one the agency is authorized to make and is not being conducted solely for an improper purpose such as political harassment or intimidation or otherwise in bad faith.” Pennington v. Donovan, 574 F.Supp. 708, 709 (S.D. Tex. 1983). The SEC is statutorily empowered to investigate suspected violations of federal securities laws. 15 U.S.C. §§ 77t(a), 78u(a); Sec. & Exch. Comm’n v. Arthur Young & Co., 584 F.2d 1018, 1023 (D.C. Cir. 1978) (“Congress has endowed the Commission . . . with broad power to conduct investigations . . . [to] ferret out violations of the federal securities laws and implementing regulations, . . . and in that connection to call for production of relevant materials by those who seem to have them.”). Gewerter does not argue or offer evidence that the SEC is conducting its investigation solely for an improper purpose. Accordingly, the Court finds the challenged subpoena is issued in connection with a legitimate SEC inquiry.

         Subpoenaed information is relevant if the requested material “touches a matter under investigation.” Sandsend Fin. Consultants, Ltd. v. Fed. Home Loan Bank Bd., 878 F.2d 875, 882 (5th Cir. 1989) (internal quotations and citations omitted). “RFPA requires only that financial information be relevant to a ‘legitimate law enforcement inquiry, ’ and not relevant in a narrow, evidentiary sense[.]” United States v. Wilson, 571 F.Supp. 1417, 1420 (S.D.N.Y. 1983). The SEC contends that Gewerter’s IOLTA Account records will allow it “to confirm whether [the account] contains, or has contained, offering proceeds or other monies raised or deposited under the names of Stuart King, the Order Entities, or other entities that may not yet be known to the staff but that may have engaged in similar offers[.]” (Doc. 4 at 14.) Additionally, the SEC “seek[s] the records to identify any IOLTA Account funds transferred to, from, for the benefit of, or on behalf of any Order Entities so that it can obtain a more complete picture of the conduct and transactions being investigated.” (Id.) Finally, the SEC argues that the IOLTA Account records will allow it to ‚Äútrace what happened to money connected to Stuart King, the Order Entities, ...

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