Grenda v. United States Securities and Exchange Commission

Filing 6

DECISION AND ORDER denying plaintiff's 1 Motion to Quash Administrative Subpoena. SO ORDERED. Signed by Hon. Lawrence J. Vilardo on 9/14/2017. (CMD)-CLERK TO FOLLOW UP-

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
___________________________________
Walter F. Grenda, Jr. and
Maryann Grenda,

17-CV-537

v.
United States Securities and Exchange
Commission,
Respondent.
___________________________________

DECISION AND ORDER

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
___________________________________
Gregory M. Grenda,
17-CV-536
v.
United States Securities and Exchange
Commission,
Respondent.
___________________________________

Walter F. Grenda, Jr. (“Walter”) and his wife, Maryann Grenda (“Maryann”),
commenced an action seeking to quash an investigative subpoena issued to them by
the Securities and Exchange Commission (the “SEC”). Their son, Gregory Grenda
(“Gregory”), commenced a separate action seeking to quash an SEC subpoena issued
to him. 1 Both motions to quash are made pursuant to the customer challenge provision

1

Although the parties are part of two separate cases—1:17-cv-00537 and 1:17cv-00536—they are considered together.

of the Right to Financial Privacy Act of 1978, 12 U.S.C. Section 3401 (“RFPA”). The
respondent, the SEC, opposes these motions, arguing that the bank records sought are
related to legitimate law enforcement activity. For the reasons stated below, both
motions to quash are denied.
BACKGROUND 2
In July 2015, Walter entered into a settlement with the SEC. Under the terms of
the agreement, he was prohibited from associating with investment advisors for three
years. In the Matter of Reliance Financial Advisors LLC, SEC Administrative
Proceeding File No. 3-16311, http://www.sec.gov/litigation/admin/2015/33-9872.pdf. On
August 16, 2016, the SEC issued a formal order of investigation, alleging that Walter
may have violated the terms of the settlement agreement by engaging in investmentrelated activities.
Even before the settlement with the SEC, Walter and his son were involved in
business activity together. In fact, when the SEC investigation was pending, what had
started as Walter’s business—Reliance Financial Advisors, LLC—was sold to Gregory
and renamed the Grenda Group, LLC (the “Grenda Group”). The SEC alleges that after
Walter was barred from participating in the Grenda Group, he continued to advise
clients and that he represented himself as “Greg” in brokerage meetings.
Consequently, the SEC issued subpoenas in an effort to uncover whether Walter

2

All facts are drawn from the SEC’s memoranda of opposition, verified by
Kimberly A. Yuhas. See 1:17-cv-00537 Docket Items 7 and 7-1; 1:17-cv-00536 Docket
Items 5 and 5-1.
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received any money—salary or payments—from Grenda Group business transactions
or otherwise participated in those transactions.
In part because Walter does not have a bank account in his name, the subpoena
requested information regarding the bank accounts of his son and his wife—Gregory
and Maryann. According to the SEC, there is evidence that Maryann’s accounts were
used for large business transactions, including payments to the SEC itself.
Furthermore, Maryann is not an entirely independent third party, as she is currently
employed by the Grenda Group as the receptionist. And Gregory’s account was
likewise subpoenaed to look for activity to, from, or on behalf of his father.
On June 14, 2017, the Grendas filed motions to quash the SEC subpoenas.
Gregory concedes that the formal order issued on August 16, 2017, is a legitimate
inquiry, but he challenges the relevance of the information requested by the subpoena.
Maryann and Walter challenge both the legitimacy of the inquiry and the relevance of
the information requested.
DISCUSSION
I.

STANDARD
Under the RFPA, and specifically, 12 U.S.C. Section 3405, a government

authority may subpoena financial records only if the records are “relevant to a legitimate
law enforcement inquiry.” In reviewing a challenge to an administrative subpoena,
district courts may “undertake only an extremely limited inquiry.” N.L.R.B. v. Frederick
Cowan & Co., Inc., 522 F.2d 26, 38 (2d Cir. 1975). The court must deny a challenge to
a subpoena issued pursuant to the RFPA if the court “finds that . . . there is a
demonstrable reason to believe that the law enforcement inquiry is legitimate and a
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reasonable belief that the records sought are relevant to the inquiry.” 12 U.S.C. §
3410(c); see also Grafstrom v. SEC, 532 F. Supp. 1023, 1025 (S.D.N.Y. 1982).
A court may quash an administrative subpoena if the target demonstrates that
the subpoena was issued in bad faith—to harass, to pressure the person subject to
investigation, or for some other “improper purposes.” SEC v. Brigadoon Scotch Distrib.,
480 F.2d 1047, 1056 (2d Cir. 1973). But when the administrative agency is authorized
by law to conduct the inquiry and the information subject to the subpoena is relevant to
the inquiry, the bad faith burden is “not easily met”. Id.
Moreover, the agency issuing the subpoena need not show that the records are
relevant to a legitimate inquiry; rather, it need show only that there is a “reasonable
belief that the records sought are relevant to that inquiry.” In re SEC, 1990 WL 119321,
at *2 (S.D.N.Y. Aug. 10, 1990) (quoting 12 U.S.C. § 3410(c)); see also United States v.
Wilson, 571 F. Supp. 1417, 1420 (S.D.N.Y. 1983) (“[T]he RFPA requires only that
financial information be relevant to a ‘legitimate law enforcement inquiry,’ and not
relevant in a narrow, evidentiary sense.”). And when the target of a subpoena is
connected to activity that is the subject of a legitimate SEC investigation, the SEC has
indeed shown the required reasonable belief. See In re SEC, 1990 WL 119321, at *2.
Finally, when the scope of an SEC subpoena is challenged, as it is here, the fact “that
the SEC has cast its net broadly and may obtain information that ultimately is not
directly relevant,” without more, is not a basis to quash or limit the subpoena. See
Feiner v. SEC, 914 F. Supp. 2d 474, 479 (S.D.N.Y. 2012).
When third parties are implicated by the investigative measures, additional
privacy rights are at stake. In re McVane, 44 F.3d 1127, 1138 (2d Cir. 1995). Although

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individuals uninvolved in the matters subject to inquiry may have an expectation of
privacy greater than that of those who are directly involved, even for those uninvolved
individuals the shield is not impenetrable. See id. (“[A]dministrative subpoenas . . .
which seek personal records of persons . . . whose connection to the investigation
consists only of their family ties . . . must face more exacting scrutiny.”). But to obtain
information from third parties, the agency should articulate a need beyond mere
relevancy. Federal Election Comm’n v. Larouche Campaign, 817 F.2d 233, 234 (2d Cir.
1987) (per curiam).
In light of these standards, the SEC subpoenas issued here survive the motions
to quash.
II.

ANALYSIS
A.

Gregory’s Bank Account

Gregory does not dispute that the inquiry into whether his father violated the
settlement agreement is a legitimate one. Rather, the issue he raises is whether the
information sought is relevant to that legitimate inquiry.
The SEC argues that the information it seeks is relevant because the alleged
unlawful behavior stemmed from Walter’s association with Gregory’s business
accounts. As such, the SEC reasons, Gregory’s bank account statements may shed
light on whether Walter was engaged in conduct that violates the terms of his bar. But
Gregory questions the scope of the subpoena: he notes that it seeks records from prior
to the time when Walter’s bar was in place and that it requests information regarding
small—and perhaps personal—transactions. The SEC replies that this information is
relevant to help establish a baseline of transactions between the Grendas to determine
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whether there may be repeating patterns, as well as to look for ways that the method of
payments to Walter may have been changed or hidden after the bar. The SEC also
notes that transactions under $500 may still involve compensation to Walter.
Because the SEC need only show that the information requested is reasonably
related to a legitimate inquiry, the subpoena of Gregory’s bank account passes muster.
Gregory is connected to his father both by blood and by business relationship. Because
his father’s former company was sold to him—and because his father is barred from
working in that company as he had done previously—Gregory is also connected to the
activity under investigation. Records from shortly before—and then after—the bar was
imposed may well illuminate whether there are payments and transactions that
evidence violations of the SEC bar. See In re SEC, 1990 WL 119321, at *2. Moreover,
there is no reason to believe that a series of smaller transactions were not used in place
of one or a few larger ones, and therefore no reason to impose an arbitrary dollar limit
on the material and information requested. See Feiner, 914 F. Supp. 2d at 479.
B.

Maryann’s Bank Accounts

Maryann disputes both the legitimacy of the SEC inquiry and the relevance of the
material requested.
Her first objection is easily disposed of: the inquiry is indeed legitimate. Walter
was bound by a settlement he reached with the SEC precluding him from working in the
business he once owned, and the SEC is investigating whether he violated that
prohibition. That is a legitimate inquiry, plain and simple.
Moreover, the subpoena directed to Maryann is relevant as well. Unlike the
subpoena targets in the cases cited by Maryann, she is not simply an uninvolved family
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member. Individuals with a mere familial connection are entitled to heightened privacy
protection, but Maryann also is an employee of the organization that Walter formerly
owned and through which he is suspected of continuing to do business in violation of
the SEC bar. Cf. In re McVane, 44 F.3d at 1138. What is more, Walter does not have a
bank account in his own name. For that reason, and because the SEC claims to have
evidence that Walter used Maryann’s accounts in lieu of maintaining his own account,
looking at his wife’s accounts is both material and relevant to the legitimate inquiry. Cf.
id. Finally, there is no evidence of, nor does Maryann even allege, bad faith on the part
of the SEC.
Because Maryann is an employee of the organization at issue, because she is
the wife of the investigation target who does not have a bank account of his own, and
because the SEC claims to have evidence that her accounts have been used by her
husband in lieu of having his own account, the subpoena of her bank accounts is
relevant to a legitimate SEC investigation.
CONCLUSION
For the reasons stated above, the plaintiffs’ motions to quash are both denied.
SO ORDERED.
Dated:

September 14, 2017
Buffalo, New York

s/Lawrence J. Vilardo
LAWRENCE J. VILARDO
UNITED STATES DISTRICT JUDGE

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