Doe v. United States of America Securities and Exchange Commission

Filing 19

ORDER by Magistrate Judge Nandor J. Vadas denying 1 Motion to Quash (njvlc2, COURT STAFF) (Filed on 10/4/2011)

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1 2 NOT FOR CITATION 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 EUREKA DIVISION 7 JOHN DOE, 8 No. 3: 11-mc-80184 CRB (NJV) Movant, 9 v. ORDER DENYING MOTION TO QUASH SUBPOENA (Doc. No. 1) 11 For the Northern District of California United States District Court 10 12 13 14 UNITED STATES OF AMERICA SECURITIES AND EXCHANGE COMMISSION, Respondent. ___________________________________/ 15 INTRODUCTION 16 The district court has referred this motion to quash and all future discovery matters to this Court 17 for determination. Doc. No. 9. Before the Court is John Doe’s (“Movant”) motion to quash an 18 administrative subpoena served on third party Google, Inc. (“Google”) by the United States Securities 19 and Exchange Commission (“SEC”). The administrative subpoena seeks certain information of the type 20 and in the manner authorized by the Electronic Communications Privacy Act, 18 U.S.C. §§ 2701, et seq. 21 (“ECPA”). The matter came on for hearing on October 4, 2011, the parties appearing telephonically. 22 Having carefully considered the papers filed by and the arguments of the parties, the Court denies the 23 motion to quash. The SEC sufficiently has demonstrated that the information sought is relevant and 24 material to an ongoing investigation. 25 BACKGROUND 26 The administrative subpoena at issue seeks to discover the identity of the owner of the email 27 address “,” which the SEC has reason to believe may have been used to tout 28 generally ‘involve the touting of a company’s stock (typically microcap companies) through false and 3 misleading statements to the marketplace. After pumping the stock, fraudsters make huge profits by 4 selling their cheap stock into the market.’” Doc. No. 11 (SEC Opp’n to Motion to Quash) at 2 (quoting 5 United States v. Zolp, 479 F.3d 715, 717 n.1 (9th Cir. 2007)). The SEC is investigating a rapid increase 6 in Jammin Java’s price, which coincided with the wide dissemination of online newsletters touting its 7 stock. Doc. No. 11-2 (Declaration of Kevin De Jong in Opp’n to Motion to Quash (“De Jong Decl.”)) 8 ¶ 8. The SEC is investigating the online newsletters to determine whether they contained materially 9 false information about Jammin Java, and/or failed to disclose the disseminator’s financial interest in 10 the company or compensation the company paid them. Id., ¶ 9; see also id., Ex. A (SEC May 13, 2011 11 For the Northern District of California stock for “Jammin Java Corp.” as part of a “pump and dump” scheme.1 “Pump and dump schemes 2 United States District Court 1 Order Directing Private Investigation And Designating Officers To Take Testimony (“SEC Order”)). 12 The SEC represents that it “has obtained information indicating that an individual using the email 13 address ‘’ may be involved in the touting activity at issue in the 14 investigation.” Id., ¶ 10; see also Doc. No. 11 at 6 (the SEC “identified Movant’s email address as one 15 that potentially belongs to a touter in the ‘pump and dump’ scheme and issued an administrative 16 subpoena to determine the identity of the potential touter”). Pursuant to its investigative powers and the 17 ECPA, the SEC accordingly served an administrative subpoena on Google seeking the identity and 18 contact information of the owner of the email address “” See Doc. No. 11 19 at 1-2. Google gave the owner of the email address notice of the subpoena, the owner hired counsel, 20 and counsel moved to quash the subpoena. Doc. No. 2 (Declaration of John Doe) ¶¶ 5-6. 21 22 DISCUSSION A. Legal Standard 23 The Electronic Communications Privacy Act (“ECPA”) requires “a provider of electronic 24 communication service or remote computing device” to “disclose to a governmental entity the (A) name; 25 (B) address; (C) local and long distance telephone connection records, or records of session times and 26 durations; (D) length of service . . . and types of service utilized; (E) telephone or instrument number 27 28 1 The owner(s) of two other email addresses similarly have moved to quash administrative subpoenas the SEC issued to Google in relation to its Jammin Java investigation, and the three cases have been related. See Doc. No. 15 (relating Case Nos. 11-mc-80208 CRB and 11-mc-80209 CRB to this one). 2 1 or other subscriber number or identity . . .; and (F) means and source of payment for such service, of a 2 subscriber when the governmental entity uses and administrative subpoena authorized by Federal or 3 State statute . . . .” 18 U.S.C. § 2703(c)(2) (a provider “shall disclose to a governmental entity”). When 4 a governmental entity seeks information under 18 U.S.C. § 2703(c), the ECPA specifically provides the 5 government is not required to provide notice to the customer whose records are being sought. 18 U.S.C. 6 § 2703(c)(3). 7 There is no provision in the ECPA allowing a customer whose non-content records are being 8 sought to prevent disclosure, although where the governmental entity is seeking the contents of customer 9 communications, customers may challenge disclosure. 18 U.S.C. § 2704(b)(1)(A). B. Analysis 11 For the Northern District of California United States District Court 10 1. The Parties’ Positions. 12 Movant argues the subpoena should be quashed because disclosure of his2 identity would violate 13 his right to anonymous speech, which is protected by the First Amendment to the United States 14 Constitution. Movant has used the email address “to speak anonymously on the Internet. Specifically, 15 I use the email address to post my opinions on various political blogs, including about the policies of 16 specific members of the U.S. Congress. I have made these political statements under the belief that my 17 anonymity will be protected.” Doc. No. 2, ¶ 3. Movant argues that the SEC was required to attempt 18 to notify him and give him the opportunity to respond to the subpoena; that to prevail here, the SEC 19 must allege a facially valid legal claim, produce prima facie evidence supporting the elements of that 20 claim and demonstrate the speaker’s identity is relevant to the legal claims; and then, that the court must 21 balance the interests of the parties. Doc. No. 1 at 4-5. In support of this argument, Movant relies on 22 cases involving discovery requests served by private parties in civil lawsuits. See id. (citing In re 23 Anonymous Online Speakers, 2011 U.S. App. LEXIS 487 (9th Cir. 2011) (motion to compel deponent 24 to reveal identity of certain anonymous online speakers alleged to have participated in “smear 25 campaign” against class action defendant); Quixtar Inc. v. Signature Mgmt. Team, LLC, 566 F. Supp. 26 2d 1205, 1212 (D. Nev. 2008) (tortious interference); Highfields Capital Mgmt. LP v. Doe, 385 F. Supp. 27 2d 969, 970-71 (N.D. Cal. 2005) (trademark and defamation)). None of these cases, however, addresses 28 2 While Movant is proceeding anonymously, based on his selection of the pseudonym “John,” the Court will assume that Movant is male. 3 1 the standard applicable to administrative subpoenas seeking non-content account information pursuant 2 to section 2703(c) of the ECPA in connection with a securities fraud investigation. 346, 348 (9th Cir. 1998) for the uncontroversial proposition that administrative agencies may investigate 5 on the mere suspicion the law is being violated. Brock sets out the three-part standard of review courts 6 in the Ninth Circuit apply in an agency subpoena enforcement proceeding: (1) has Congress granted the 7 agency the authority to investigate; (2) have procedural requirements been followed; and (3) is the 8 information sought relevant and material to the investigation? 860 F.2d at 348-49. Brock recognizes 9 that First Amendment protections may apply to information sought by an administrative subpoena and 10 provides that where a party opposing disclosure makes a prima facie showing of arguable First 11 For the Northern District of California The SEC directs the Court to Brock v. Local 375, Plumbers Int'l Union of America, 860 F.2d 4 United States District Court 3 Amendment infringement, the burden will shift to the government to show the information sought is 12 rationally related to a compelling governmental interest and the subpoena is the “least restrictive means 13 of obtaining the desired information.” Brock, 860 F.2d at 350. Movant contends the Brock test does 14 not apply here because a “more rigorous standard” applies to anonymous speech cases than to cases 15 involving the right to free association at issue in Brock. Doc. No. 12 at 2. 16 2. The Appropriate Legal Standard For Compelling Disclosure Pursuant To An Administrative 17 Subpoena. 18 Movant’s argument relies exclusively on cases analyzing standards for disclosure in civil actions 19 involving private parties embroiled in discovery disputes3 -- not cases balancing the needs of a 20 legitimate government investigation with the interest of a party wishing to remain anonymous. The 21 government is not being “held to a lower standard when it uses its authority to strip a speaker’s 22 anonymity” (Doc. No. 12 at 2); rather, Congress recognizes the need for government agencies to 23 investigate wrongdoing and accordingly has granted these agencies investigatory powers that are not 24 available to civil parties. The ECPA, for example, allows government agencies like the SEC to issue 25 26 27 28 3 Contrary to Movant’s argument, In re Anonymous Online Speakers v. U.S. District Court, 2011 U.S. App. LEXIS 487 (9th Cir. Jan. 7, 2011) does not set out a standard applicable to criminal or governmental investigations. The Ninth Circuit there concluded that the lower court “appropriately considered the important value of anonymous speech balanced against a party’s need for relevant discovery in a civil action.” Id. at *17. Neither the district court nor the Ninth Circuit purported to apply the same standard outside of the civil action context. 4 1 administrative subpoenas requesting information from ISPs or to obtain court orders compelling 2 disclosure of subscriber information. 18 U.S.C. § 2703(c). 3 4 The Court declines to impose a “more rigorous standard” than the standard articulated by Brock for two reasons: anonymous speech cases of this nature. The SEC subpoena does not seek the content of any of 7 Movant’s communications but rather “addressing information” that will allow the SEC to identify 8 Movant. Movant contends that he “has not disclosed his personal information in connection with the 9 email address” (Doc. No. 1 at 3), but overlooks the fact that he voluntarily provided the information to 10 Google when he signed up for his email account. The government thus seeks to compel disclosure of 11 For the Northern District of California First, contrary to Movant’s assertion, courts have not imposed a more rigorous standard in 6 United States District Court 5 information Movant himself freely communicated to a third party. This type of disclosure is “routinely” 12 ordered by courts. In re § 2703(d) Order, 2011 U.S. Dist. LEXIS 25322, ** 11-13 (E.D. Va. Mar. 11, 13 2011) (freedom of association does not shield persons from cooperating with legitimate government 14 investigations, and routine compelled disclosure of non-content information that customer voluntarily 15 provided to service provider does not form basis for First Amendment claim); see also London v. Does 16 1-4, 2008 U.S. App. LEXIS 11428, **4-5 (9th Cir. May 22, 2008) (affirming denial of motion to quash 17 civil subpoena to internet service provider (“ISP”) to reveal owner of email accounts because “exposure 18 of some identifying data does not violate the First Amendment”). Other courts have weighed subscriber 19 expectation of privacy when assessing First Amendment challenges to compelled disclosure of 20 subpoenaed identifying information in civil cases, and concluded that Internet subscribers do not have 21 a reasonable expectation of privacy in subscriber information they have already conveyed to their ISPs. 22 See, e.g., First Time Videos, LLC v. Does 1-500, 2011 U.S. Dist. LEXIS 89044, **14-22 (N.D. Ill. Aug. 23 9, 2011) (analyzing motion to quash Rule 45 subpoena seeking discovery of addressing information of 24 subscribers in copyright suit) (citing Sony Music Entertainment, Inc. v. Does 1-40, 326 F. Supp. 2d 556, 25 564-65) (S.D.N.Y. 2004)). 26 Similarly, courts hearing motions to suppress evidence under the Fourth Amendment routinely 27 reject the argument that subscribers have a privacy interest in their account information. See, e.g., 28 United States v. Perrine, 518 F.3d 1196, 1204 (10th Cir. 2008); United States v. Li, 2008 U.S. Dist. 5 non-content information; subscribers have no reasonable expectation of privacy in IP addressing 3 information); Oregon v. Delp, 178 P.3d 259, 264-65 (Ore. App. 2008) (no error to deny motion to 4 suppress evidence obtained as result of FBI subpoena to service provider seeking name and address of 5 suspect in criminal investigation); Hawai’i v. Offerman, 2008 Haw. App. LEXIS 390, **13-14 (Haw. 6 App. July 17, 2008) (“Federal courts, which have examined this issue in the context of information 7 obtained pursuant to the ECPA, have uniformly held that a subscriber does not have a reasonable 8 expectation of privacy in the subscriber information he or she provides to an internet service provider”); 9 United States v. Polizzi, 549 F. Supp. 2d 308, 393-94 (E.D.N.Y. 2008) (subscriber lacks legitimate 10 privacy interest in account information that was transmitted to ISP). The Court finds no merit to 11 For the Northern District of California LEXIS 22283, *15 (N.D. Cal. Mar. 20, 2008) (ECPA draws important distinction between content and 2 United States District Court 1 Movant’s argument that a “more rigorous” test should apply to this case than to the freedom of 12 association at issue in Brock. 13 Second, Movant in a footnote argues that 18 U.S.C. § 2703 is unconstitutional to the extent it 14 allows the government to obtain information without giving notice to the subscriber (Doc. No. 12 at 2, 15 n.1), but does not cite any case reaching that conclusion. The Court has found none. Cf. Warshak v. 16 United States, 532 F.3d 521, 530-31 (6th Cir. 2008) (lawsuit claiming section 2703(d) unconstitutional 17 not ripe for review because whether email search violated subscriber’s Fourth Amendment rights more 18 appropriately decided on case-by-case basis); see also supra (citing cases upholding disclosures made 19 pursuant to 18 U.S.C. § 2703). In fact, Movant’s argument goes against the United States Supreme 20 Court’s holding outside of the ECPA context that the SEC need not inform the target of its investigation 21 when it issues a third party subpoena. See SEC v. Jerry T. O’Brian, Inc., 467 U.S. 735, 742-47 (1984). 22 Insofar as a government agency seeks only identifying information for a customer, as opposed to the 23 contents of a customer’s communication4, the agency need not provide the customer any notice that it 24 is seeking records pursuant to 18 U.S.C. § 2703. See SAMS v. Yahoo!, Inc., 2011 U.S. Dist. LEXIS 25 53202, **20-21 (N.D. Cal. May 18, 2011) (noting that notice is not required where government seeks 26 27 28 4 The ECPA draws a significant distinction between content information and non-content (or “addressing”) information, and provides far greater protection to former than it does to the latter. In order to obtain content information, an agency must proceed either by warrant (which was obtained under applicable rules of criminal procedure), or by subpoena, with notice to the subscriber. See 18 U.S.C. § 2703(a) (warrant only method of obtaining content that has been in electronic storage for 180 days or less), (b) (warrant or subpoena can be used to obtain content in remote computing service). 6 1 addressing, non-content information from ISP). Unless the government agency successfully applies 2 for an order sealing the subpoena, ISPs may provide their subscribers with notice, as Google did here. 3 The information sought by the SEC is explicitly permitted by the ECPA, and does not implicate 4 First Amendment concerns. 5 3. The SEC Has Made The Required Showing. 6 The Court thus declines to apply the standard Movant advocates, and instead applies the Brock 7 three-prong test, including the “relevant and material” standard. Brock, 860 F.2d at 349. (1) Congress granted the SEC the authority to investigate potential violations of securities laws. 10 In issuing the SEC Order and proceeding to investigate the Jammin Java stock fluctuations, the SEC is 11 For the Northern District of California The SEC has established all three prongs of the Brock test: 9 United States District Court 8 fulfilling its Congressional mandate. See 15 U.S.C. §§ 78u(a), (b); see also Jerry T. O’Brian, 467 U.S. 12 at 741-51. 13 (2) The SEC has followed the procedural requirements for serving an administrative subpoena. 14 Movant originally challenged the SEC’s failure to provide him advance notice of the subpoena, but 15 appears to have abandoned this argument by the time of the hearing. As explained above, the procedural 16 requirements of the administrative subpoena did not require the SEC to provide notice of the subpoena, 17 and Movant’s argument on this point (Doc. No. 1 at 2, 6) fails. 18 (3) The main point Movant challenges is that the SEC has not sufficiently established the 19 relevance of his email address to the investigation. In opposition to the motion, the SEC represents it 20 “has obtained information indicating that the email address ‘’ potentially 21 belongs to a touter in the ‘pump and dump’ scheme.” Doc. No. 11-2 (De Jong Decl.) ¶ 10; see also Doc. 22 No. 11 at 6 (“the Staff identified Movant’s email address as one that potentially belongs to a touter in 23 the ‘pump and dump’ scheme and issued an administrative subpoena to determine the identity of the 24 potential touter”). The Court notes that Kyle De Jong’s Declaration was submitted under penalty of 25 perjury. In addition, during the hearing, counsel for the SEC testified that the SEC had investigated 26 web-sites where the touts had appeared and tracked the email addresses of individuals who had 27 participated in setting up those web-sites. “” was involved in setting up the 28 web-sites and/or setting up email blasts that contained touts for Jammin Java. 7 “” address because the SEC Order does not identify that address or establish 3 that securities laws have been violated. 4 investigate “possible violations” of federal securities laws. Jerry T. O’Brian, 467 U.S. at 741, 743, 745 5 (SEC investigatory powers are “expansive”); Carrillo Huettel, LLP v. SEC, 2011 WL 601369 (S.D. Cal. 6 Feb. 11, 2011) (denying motion to quash subpoena for bank records of law firm where SEC had 7 evidence that law firm represented individuals being investigated and also “may” have been involved 8 in violation itself). For example, the SEC in conducting investigations “which, in the opinion of the 9 Commission, are necessary and proper for the enforcement” of the Securities Act may “require the 10 production of any books, papers, or other documents which the Commission deems relevant or material 11 For the Northern District of California There is no support for Movant’s argument that the SEC cannot investigate the ownership of the 2 United States District Court 1 to the inquiry.” 15 U.S.C. § 77s(c). The Commission may “make such investigations as it deems 12 necessary to determine whether any person has violated, is violating, or is about to violate” any SEC 13 rules or regulations, and may demand to inspect any documents “the Commission deems relevant or 14 material to the inquiry.” 15 U.S.C. §§ 78u(a), (b). The SEC thus has wide latitude to investigate whether 15 any “persons or entities” potentially have violated the Securities Act of 1933 or the Securities Exchange 16 Act of 1934. See Doc. No. 11-2 (De Jong Decl.) ¶¶ 2-4. Doc. No. 1 at 6-7. The SEC has “broad authority” to 17 Nor does the SEC need to offer admissible evidence that the owner of the email address 18 “” is related to its investigation (Doc. No. 12 at 3-5) in order to acquire the 19 requested information. See Jerry T. O’Brian, 467 U.S. at 745 (noting that the SEC “often undertakes 20 investigations into suspicious securities transactions without any knowledge of which of the parties 21 involved may have violated the law,” for example when trading activity suggests insider information 22 may have been used but the SEC “may have no idea which (if any) of the thousands of purchasers had 23 improper access to insider information”); see also United States v. Morton Salt, 338 U.S. 632, 642-43 24 (1950) (a federal agency “can investigate merely on the suspicion that the law is being violated, or even 25 just because it wants assurance that it is not” and is not precluded from engaging in “fishing 26 expeditions” in the same manner litigants in courts are). The SEC only need show that the information 27 it seeks is relevant to its investigation of a potential violation, and when assessing the validity of an 28 agency subpoena “the notion of relevancy is a broad one.” EEOC v. Elrod, 674 F.2d 601, 613 (7th Cir. 8 1 1982). An administrative subpoena will survive a relevancy challenge as long as the information 2 requested “touches a matter under investigation.” Elrod, 674 F.2d at 613 (internal quotation omitted). 3 The identity of a potential touter of the Jammin Java stock “touches” the SEC’s Jammin Java 4 investigation and thus is relevant. speech. Movant has a First Amendment right to participate in anonymous speech, political or otherwise, 7 in online fora. However, at least in the context of valid government investigations, courts repeatedly 8 have concluded that identifying information is not subject to First Amendment (or Fourth Amendment) 9 protection. See supra at pp. 5-6. Movant thus fails to establish a prima facie showing of First 10 Amendment infringement under Brock, and the burden does not shift to the SEC to establish a 11 For the Northern District of California Movant contends he has used the email address at issue to participate in anonymous political 6 United States District Court 5 compelling interest exists. Brock, 860 F.2d at 350. 12 CONCLUSION 13 Movant has not established that his addressing information is protected under the First 14 Amendment, and the SEC sufficiently has established that the ownership of the email address 15 “” is relevant to the Jammin Java investigation. Accordingly, the motion to 16 quash the subpoena directed at Google requesting this information is denied. 17 18 Dated: October 4, 2011 19 NANDOR J. VADAS United States Magistrate Judge 20 21 22 23 24 25 26 27 28 9

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