The Attorney General of Texas
JIM MATTOX December 19, 1983
AttorneyGeneral
Supreme Court Building Mr. Richard D. Latham Opinion No. JM-101
P. 0. Box 12546 securities commissioner
Austin, TX. 76711. 2546 Re: Effect of Senate Bill No.
State Securities Board
5121475.2501
Telex 910/674-1367
1800 San Jacinto 429 regarding subpoenas for
Telecopier 5121475.0266 Austin, Texas 78711 bank records
Dear Mr. Latham:
714 Jackson, Suite 700
Dallar,, TX. 75202.4506
2141742-6944
You have asked the following questions:
1. Does section 1 of article 342-705,
4624 Alberta Ave.. Suite 160 V.T.C.S., as amended by Senate Bill No. 429, Acts
El Paso, TX. 79905-2793
of the Sixty-eighth Legislature, Regular Session,
9151533.3464
restrict the authority of the securities
- commissioner to issue subpoenas to banks for
,131 Texas. Suite 700 records of bank'accounts or other bank records
Houston, TX. 77002-3111 pursuant to investigations conducted under section
713/223-5666 28 of the Securities Act, article 581, V.T.C.S.?
606 Broadway. Suite 312
2. Do .&he advance notice and challenge
Lubbock. TX. 79401-3479 provisions of sections 2 and 3 of article 342-705
6061747.5236 as amended by Senate Bill No. 429 apply to
subpoenas issued to banks by the securities
commissioner in investigations conducted under
4369 N. Tenth, Suite B
McAllen, TX. 76501.1665
section 28 of the Securities Act?
5121662-4547
We conclude that where an investigation of criminal offenses is
involved, section 1 of article 342-705, V.T.C.S.. as amended by Senate
200 Main Plaza. Suite 400
Bill No. 429, Acts 1983, Sixty-eighth Legislature, chapter 525, at
San Antonio, TX. 76205.2797
5121225-4191
3056, does not restrict the authority of the securities commissioner
to issue subpoenas to banks pursuant to article 581-28. V.T.C.S., nor
do the advance notice and challenge provisions of sections 2 and 3 of
An Equal Opportunity/ article 342-705 as likewise amended apply to such subpoenas issued in
Affirmative Action Employer
criminal investigations conducted under article 581-28.
Article 342-705, V.T.C.S., as amended, concerns, first, the duty
of banks to recognize adverse claims to deposits and, second, the
rights and duties of various parties when information is requested
from a bank about a customer. The questions posed by you concern only
the second aspect. Section 1 of article 342-705, as amended, requires
banks to produce their records only under certain circumstances.
p. 424
Mr. Richard D. Latham - Page 2 (~~-101)
Section 2 requires the person seeking production of records to give
prior notice to the customer and to certify to the bank that it has
given such notice. It also allows the bank to recover reasonable
reproduction costs and to notify the customer of a request for
production. Section 3 allows the customer to seek a court order
quashing the subpoena or other request. However, section 3 of Senate
Bill No. 429 provides explicitly that "the provisions of this Act
shall not apply to the investigation or prosecution of criminal
offenses."
The securities commissioner has the duty to investigate criminal
offenses. Article 581-3 of the Texas Securities Act, V.T.C.S.,
requires the securities commissioner to make such investigations as
will prevent violations of the Securities Act. It also requires the
commissioner to lay before the proper district or county attorney any
evidence which he has of criminality under the Securities Act.
Article 581-29 of the Securities Act contains penal provisions. The
subpoena power of the commissioner is authorized by article 581-28 of
the Securities Act. The power relates "to any matter which the
Commissioner has authority by this Act to consider or
investigate . . . .I'
You have advised us as follows:
The majority of investigations which result in
action being taken result in a criminal
prosecution . . . . All of our investigations
except some license matters involve suspected
criminal offenses. Some other routine inquiries
do not involve criminal offenses, but they are
resolved without an investigation being opened.
It is the policy of the securities commissioner to
not issue a subpoena unless a formal investigation
is open.
. . . .
The section 29 criminal provisions are broad
and most violations of the Act which come to our
attention, regardless of how they are final.ly
resolved, are violations of section 29. Under
section 29 of the Securities Act it is a felony
punishable by up to 10 years in the penitentiary
and a $5,000 fine to sell securities which have
not been registered for sale by the securities
commissioner; to sell securities without being
properly licensed by the securities commisssioner;
and to engage in fraud or fraudulent practices in
the sale of securities. If the fraud involves
p. 425
. .
Mr. Richard D. Latham - Page 3 (JM-101)
more than $10,000, the maximum penalty Ins20 years
and $10,000. These are clearly criminal offenses,
and bank subpoenas issued in the course of such
investigations would seem to be excluded from
Senate Bill No. 420.
The injunctive provisions of section 32 of the
Securities Act are also based on criminal conduct.
Section 32 is stated in terms of 'fraudulent
practices,' acting as an unregistered dealer, and
selling securities in violation of the act, which
are also felonies under section 29.
Administrative Cease and Desist actions issued
pursuant to section 23 of the Securities Act are
based on 'tend to work a fraud' language, and,
like other fraud, are criminal offenses which
could be prosecuted under section 29 or 32. The
securities commissioner does not issue subpoenas
for bank records in cases where a criminal offense
is not suspected.
We believe the language of section 3 of Senate Bill No. 429 makes
it clear beyond cavil that article 342-705 as amended does not apply
to subpoenas issued by the securities commissl~oner in criminal
investigations nor does it subject such subpoenas to notice and
challenge in criminal investigations. Since you indicate that
virtually all your agency's investigations under article 581-28
involve suspected criminal offenses and the probability of criminal
prosecutions, the amendments to article 342-705, effected by Senate
Bill No. 429, have essentially no bearing on the vast majority of the
investigations conducted by the State Securities Board.
SUMMARY
The amendments by Senate Bill No. 425 to
article 342-705, V.T.C.S., do not restrict the
authority of the securities commissioner to issue
subpoenas to banks nor subject such subpoenas to
advance notice and challenge in criminal
investigations conducted under article 581-28,
which constitute virtually all of the securities
board's investinations.
.
, Very/tth
JIM MATTOX
Attorney General of Texas
p. 426
Mr. Richard D. Latham - Page 4 (~~-101)
TOM GREEN
First Assistant Attorney General
DAVID R. RICHARDS
Executive Assistant Attorney General
Prepared by Colin Carl
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Rick Gilpin, Chairman
Colin Carl
Susan Garrison
Jim Moellinger
Nancy Sutton
p. 427