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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Dallar,, TX. 75202.4506 

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,131 Texas. Suite 700 

Houston, TX. 77002-3111 

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San Antonio, TX. 76205.2797 

5121225-4191 

An Equal Opportunity/ 

Affirmative Action Employer 

The Attorney General of Texas 

December 19, 1983 

Mr. Richard D. Latham 

securities commissioner 

State Securities Board 

1800 San Jacinto 

Austin, Texas 78711 

Dear Mr. Latham: 

Opinion No. JM-101 

Re: Effect of Senate Bill No. 

429 regarding subpoenas for 

bank records 

You have asked the following questions: 

1. Does section 1 of article 342-705, 

V.T.C.S., as amended by Senate Bill No. 429, Acts 

of the Sixty-eighth Legislature, 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 investigations conducted under section 

28 of the Securities Act, 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 Securities Act? 

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 

Bill No. 429, Acts 1983, Sixty-eighth Legislature, chapter 525, at 

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 

article 342-705 as likewise amended apply to such subpoenas issued in 

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 Ins 20 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