JIM MATTOX Attorney

General

Supreme Court Building P. 0. Box 12546 Austin, TX. 76711. 2546 5121475.2501 Telex 910/674-1367 Telecopier 5121475.0266

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# The Attorney General of Texas

December 19, 1983

Mr. RichardD. Latham securitiescommissioner State SecuritiesBoard 1800 San Jacinto Austin, Texas 78711

Dear Mr. Latham: OpinionNo. JM-101

Re: Effect of SenateBillNo. 429 regarding subpoenas for bank records

You have asked the followingquestions:

1. Does section 1 of article 342-705, V.T.C.S., as amended by Senate Bill No. 429, Acts of the Sixty-eighthLegislature, Regular Session, restrict the authority of the securities commissioner to issue subpoenas to banks for records of bank'accounts or other bank records pursuant to investigationsconductedunder section 28 of the SecuritiesAct, article 581,V.T.C.S.?

2. Do .&he advance notice and challenge provisions of sections 2 and 3 of article 342-705
as amended by Senate Bill No. 429 apply to subpoenas issued to banks by the securities commissioner in investigations conducted under section 28 of the SecuritiesAct?

We conclude that where an investigation of criminal offenses is involved,section 1 of article 342-705,V.T.C.S..as amendedby Senate Bill No. 429, Acts 1983, Sixty-eighth Legislature, chapter 525, at 3056, does not restrict the authority of the securities commissioner to issue subpoenas tobanks pursuant to article 581-28.V.T.C.S., nor do the advancenotice and challengeprovisions of sections 2 and 3 of article 342-705 as likewiseamended apply to such subpoenas issued in criminal investigationsconductedunder 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 questionsposedby you concernonly the secondaspect. Section 1 of article 342-705,as amended,requires banks to produce their records only under certain circumstances.

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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 subpoenaor 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 commissionerhas 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 SecuritiesAct. It also requires the commissionerto lay before the proper district or county attorney any evidence which he has of criminality under the Securities Act. Article 581-29 of the SecuritiesAct containspenal provisions. The subpoenapower of the commissioner is authorizedby 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 advisedus 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 thepolicy of the securitiescommissionerto not issue a subpoenaunless 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 punishableby up to 10 years in the penitentiary and a $5,000 fine to sell securitieswhich have not been registered for sale by the securities commissioner; to sell securities without being properly licensedby the securitiescommisssioner; and to engage in fraud or fraudulentpractices in the sale of securities. If the fraud involves

p. 425. .

Mr. RichardD. Latham - Page 3 (JM-101)

more than $10,000, themaximumpenalty Ins20years and $10,000. These are clearly criminaloffenses, and bank subpoenas issued in the course of such investigations would seem to be excluded from SenateBillNo. 420.

The injunctiveprovisions of section 32 of the SecuritiesAct are alsobased 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 SecuritiesAct 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 forbank records in caseswhere a criminaloffense isnot suspected.

We believe the languageof section3 of SenateBillNo. 429makes it clearbeyond cavil that article 342-705 as amended does not apply to subpoenas issued by the securities commissl~onerin 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 essentiallyno bearing on thevast majority of the investigationsconductedby the State SecuritiesBoard.

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 constitutevirtually all of the securities board's investinations.

. Very/tth

,

JIM MATTOX AttorneyGeneralof Texas

p. 426Mr. RichardD. Latham - Page 4 (~~-101)

TOM GREEN FirstAssistantAttorneyGeneral

DAVID R. RICHARDS ExecutiveAssistantAttorneyGeneral
Preparedby Colin Carl AssistantAttorneyGeneral

APPROVED: OPINION COMMITTEE
Rick Gilpin, Chairman Colin Carl SusanGarrison Jim Moellinger Nancy Sutton

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