Burton et al v. US Securities and Exchange Commission
MEMORANDUM DECISION AND ORDER denying 2 Motion for Order Pursuant to Customer Challenge Provisions of the Right to Financial Privacy Act of 1978; granting 6 Motion for Leave to File Excess Pages. The Clerk of Court is directed to close this matter. Signed by Judge Ted Stewart on 6/6/2017. (eat)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
MARK F. BURTON, SR., as Trustee of the
BRENDA H. BURTON TRUST; MARK F.
BURTON, individually; and BRENDA H.
MEMORANDUM DECISION AND
ORDER DENYING MOVANTS’MOTION
Case No. 2:17-CV-395 TS
UNITED STATES SECURITIES AND
District Judge Ted Stewart
This matter is before the Court on Movants’ Motion for Order Pursuant to Customer
Challenge Provisions of the Right to Financial Privacy Act of 1978, which the Court interprets as
a motion to quash. For the reasons discussed below, the Court will deny Movant’s request to
quash the SEC’s subpoenas seeking Movants’ financial information.
On April 25, 2017, the SEC served three subpoenas seeking access to Movants’ financial
records from Zions Bank. The SEC sent a copy to Movants via overnight mail on the same day.
12 U.S.C. § 3410(a) provides, “[w]ithin ten days of service or within fourteen days of mailing of
a subpoena . . . a customer may file a motion to quash.” On May 15, 2017, Movants filed a
motion under 12 U.S.C. § 3410 to quash the subpoenas. While the document was not filed until
May 15, it was dated May 9, and the attached certificate of mailing bears the same date. The tenday deadline expired on May 8 and the fourteen-day deadline expired on May 9.
While the motion is dated May 9, the statute clearly states that a motion to quash must be
filed within the deadline. Some courts have found that a failure to timely file a motion to quash
under 12 U.S.C. § 3410 deprives the court of subject-matter jurisdiction. 1 Movants’ failure to
comply with the procedural requirements of Section 3410 is a sufficient basis for the Court to
deny Movants’ Motion.
Even if the Motion were timely, the government has made a sufficient showing under
Section 3410(c) to support the enforcement of the subpoenas. In response to a customer
challenge, the government must show: (1) “a demonstrable reason to believe that the law
enforcement inquiry is legitimate”; and (2) “a reasonable belief that the records sought are
relevant to that inquiry.” 2
First, it is clear that these subpoenas arise in the course of a legitimate law enforcement
inquiry. The SEC issued a Formal Order in this investigation pursuant to Section 20(a) of the
Securities Act, 15 U.S.C. § 77t(a), and Section 21(a) of the Exchange Act, 15 U.S.C. § 78u(a).
The SEC is allowed by statute to conduct investigations by the use of certain powers, including
the issuance of subpoenas.
Here, Private Placement Capital Notes II, LLC (“PPCN”) allegedly received money from
Total Wealth Management, Inc., which allegedly misappropriated millions of dollars in investor
funds. In a Southern District of California case involving Total Wealth Management, the court
stated that there were indications that payments made by PPCN to investors may have been made
See, e.g., Lund v. United States, No. 6:14-MC-00048-AA, 2014 WL 2041825, at *1 (D.
Or. May 8, 2014) (unpublished) (collecting cases); Gutierrez v. Soc. Sec. Admin. Office of
Inspector Gen., No. 2:15-MC-0075-TLN-KJN, 2015 WL 5138105, at *3 (E.D. Cal. Sept. 1,
2015) (unpublished) (same).
12 U.S.C. § 3410(c).
through a Ponzi-like scheme. 3 Congress has endowed the SEC with broad power to ferret out
violations of federal securities laws, 4 and the Court finds that the government has shown a
demonstrable reason to believe that the present law enforcement inquiry is legitimate.
Second, the Government has connected millions of dollars of PPCN investments to an
island resort where the Burtons have a significant financial interest. The SEC has obtained
documents indicating that the Burtons received substantial amounts of money from an escrow
account for the resort on multiple occasions under unusual circumstances. In addition, both the
Burtons and PPCN personnel were copied on numerous emails discussing the financial woes of
the resort. The Government claims that the Burtons’ bank records are particularly important in
determining whether the Burtons received PPCN investor funds, and how they disbursed funds
received from the resort. The Court finds that there is a reasonable belief that the Movants’ bank
records are relevant to that inquiry.
In sum, the government has established that the subpoena is relevant to a legitimate law
enforcement inquiry. There are no grounds on which to quash the subpoenas issued to Zions
Bank, and the subpoena must therefore be enforced.
It is therefore
ORDERED that Respondent’s Motion for Leave to File Excess Pages and Memorandum
in Support (Docket No. 6) is GRANTED. It is further
SEC v. Total Wealth Mgmt., Inc. et al., Case No.15-cv-226. BAS (DHB) (S.D. Cal.)
Docket No. 74 at 2:27–3:1.
See SEC v. Arthur Young & Co., 584 F.2d 1018, 1023 (D.C. Cir. 1978).
ORDERED that Movant’s Order Pursuant to Customer Challenge Provisions of the Right
to Financial Privacy Act of 1978 (Docket No. 2) is DENIED. The Clerk of Court is directed to
close this matter.
DATED this 6th day of June, 2017.
BY THE COURT:
United States District Judge
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