Securities and Exchange Commission v. Carla Marin ( 2020 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 19-13990
________________________
D.C. Docket No. 1:19-mc-20493-UU
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff - Appellee,
versus
CARLA MARIN,
Defendant - Appellant.
________________________
No. 19-14871
________________________
D.C. Docket No. 1:19-mc-20496-KMW
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff - Appellee,
versus
MINTRADE TECHNOLOGIES, LLC,
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Defendant - Appellant.
________________________
Appeals from the United States District Court
for the Southern District of Florida
________________________
(December 14, 2020)
Before WILLIAM PRYOR, Chief Judge, HULL and MARCUS, Circuit Judges.
MARCUS, Circuit Judge:
Carla Marin and MinTrade Technologies, LLC (“MinTrade”) each appeal
separate district court orders directing them to comply with Securities and
Exchange Commission subpoenas for the production of documentary evidence and
testimony. We consider the appeals together because the subpoenas relate to the
same SEC investigation, the disputes concern many common facts, the appellants
raise overlapping arguments, and the lawyers for the respective parties are the
same.
Each appellant raises a procedural objection: Marin claims she was not
subject to personal jurisdiction in the Southern District of Florida, while MinTrade
argues the district court erred by refusing to hold an evidentiary hearing before
enforcing the subpoena for MinTrade’s documents. On the merits, both Marin and
MinTrade say that the district courts should not have enforced the subpoenas
because they were not relevant to a legitimate investigative purpose. After
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thorough review, we are satisfied that in Marin the district court properly exercised
personal jurisdiction, that in MinTrade the district court did not abuse its discretion
in not holding an evidentiary hearing, and that neither district court abused its
considerable discretion in concluding that the subpoenas were relevant to a
legitimate investigation into possible violations of the Securities Exchange Act of
1934. We affirm.
I.
A.
In November 2013, the Securities and Exchange Commission (“SEC”)
issued a formal order of investigation (the “FOI”) directing an inquiry into a day-
trading entity called Traders Café, a Tampa-based Florida limited liability
company, and other unnamed entities. The SEC had developed information
tending to show that from at least late 2012, Traders Café may have engaged in
unregistered broker-dealer conduct in the United States in violation of Section
15(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78o(a), as well as other
securities law violations. The FOI authorized the SEC to subpoena documents and
testimony to determine whether Traders Café and its “officers, directors,
employees, partners, subsidiaries, and/or affiliates, or other persons or entities,”
had violated Section 15(a) and other enumerated securities laws. The FOI ordered
that “a private investigation be made to determine whether any persons or entities
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have engaged in, or are about to engage in, any of the reported acts or practices or
any acts or practices of similar purport or object.” This investigation led to
administrative, civil, and criminal actions against the principals of Traders Café,
which concluded by 2015.
The Traders Café investigation also led the SEC to another company,
SureTrader, where Traders Café maintained a “master account.” SureTrader is a
Bahamian-based broker-dealer registered with the Securities Commission of the
Bahamas. The SEC’s Miami Regional Office continues to investigate whether
SureTrader and its owner and CEO, Guy Gentile, committed or are committing
violations of Section 15(a), since neither is registered with the SEC to act as a
broker-dealer in the United States. The SEC further claims that “at least one-half
of SureTrader’s clients are United States residents and it employs more than fifty
‘experienced employees,’ servicing more than 20,000 clients, and processing over
12,000 trades per day.”
The SEC’s investigation led it to the appellants, Carla Marin and MinTrade.
Marin is the owner and sole employee of Mint Custody Limited, a Delaware
corporation in the business of asset custody. According to the SEC, SureTrader
and Gentile transferred U.S. customer funds from overseas to a U.S. bank account
belonging to Mint Custody. Marin then distributed these funds. Marin has lived in
Putnam County, New York since the 1990s.
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MinTrade is a Florida limited liability company based in West Palm Beach.
The SEC says MinTrade provides “custom technologies for financial services,
brokerage firms and trade desks.” MinTrade is connected to SureTrader and
Gentile through its registered agent Nicholas Abadiotakis. The SEC claims
Abadiotakis is the trustee of a trust through which Gentile owns a majority interest
in Stock USA Execution Services, LLC, an entity that clears trades for SureTrader.
Abadiotakis’s LinkedIn profile reveals that he has also been a trader for Stock
USA. The SEC’s lead investigator declared that there are confidential “additional
connections” between MinTrade, SureTrader, and Gentile.
B.
The procedural history surrounding Marin and MinTrade’s challenges to the
subpoenas is extensive but essential to understanding the resolution of these cases.
We summarize it in some detail.
(1.) Marin. On September 1, 2017, the SEC issued a subpoena for Marin to
appear for testimony in Miami, Florida later that month. And on December 6,
2017, the SEC also issued a subpoena for the production of documents. Marin’s
attorney claimed the subpoena had been improperly served, so the SEC served
Marin again with another subpoena for documents on November 26, 2018. Both
the testimony and documents subpoenas explained they were issued as part of the
Traders Café investigation. The subpoena for documents sought information
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regarding Mint Custody’s formation, structure, and financial accounts, as well as
documents, communications, and agreements between Mint Custody and
SureTrader or Gentile.
Over the course of about a year, Marin stalled complying with the
subpoenas. Marin failed to appear to testify, refused to testify absent a court order,
rescheduled and cancelled her testimony, and then refused to appear at all and
refused to produce any documents. In one illustrative episode, Marin initially
agreed to testify in New York, and the SEC staff scheduled her testimony in New
York City for November 9, 2017. At Marin’s request, the SEC then rescheduled
her testimony for November 20, 2017, and later for October 3, 2018, only for
Marin to twice switch attorneys and ultimately refuse to comply with either
subpoena. On February 6, 2019, having exhausted efforts to obtain Marin’s
testimony and the subpoenaed documents, the SEC applied to the district court in
Miami for an order to show cause why Marin should not appear for testimony and
produce documents, and for an order enforcing the subpoenas.
Marin opposed the enforcement of the SEC subpoenas, arguing, among
other things, that the district court lacked personal jurisdiction over her and that the
subpoenas were unenforceable because they lacked a sufficient nexus to the
Traders Café FOI. At a March 19 hearing before a magistrate judge, the SEC
presented testimony from Assistant Regional Director Jessica Weissman, who had
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overseen the Traders Café investigation for more than four years. Weismann
testified that the subpoenas to Marin sought information that was “critical and
necessary for the ongoing investigation.” On direct and cross examination, and in
response to questioning by the court, Weismann explained the connections
between Marin, Mint Custody, and the Traders Café investigation. She asserted
that Traders Café held a master account at SureTrader, that the investigation
extended to SureTrader and Gentile’s possible unregistered broker-dealer conduct,
and that a review of Mint Custody’s bank records suggested SureTrader had
moved U.S. customer funds through Mint Custody’s accounts.
The magistrate judge issued a Report and Recommendation (“R&R”)
concluding that the SEC had complied with all statutory and administrative
requirements, that the information the subpoenas sought was relevant to the
legitimate purpose of investigating whether SureTrader, Gentile, and others had
engaged in unregistered broker-dealer conduct in violation of the Exchange Act of
1934, and that the court had personal jurisdiction over Marin. The district court
agreed and adopted the R&R on September 30, 2019.
(2.) MinTrade. On December 12, 2018, the SEC subpoenaed MinTrade for
the production of documents related to Gentile, SureTrader, and SureTrader’s
affiliates. The subpoena said that it was related to the Traders Café investigation
and sought documents concerning the relationship between MinTrade, Gentile, and
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SureTrader; correspondence between MinTrade, Gentile, and SureTrader; and
documents concerning MinTrade’s formation, business nature, and bank accounts.
MinTrade informed the SEC that it would not voluntarily comply with the
subpoena.
On February 6, 2019, the same day it sought to enforce the Marin
subpoenas, the SEC applied to the district court for an order to show cause why
MinTrade should not produce documents and for an order enforcing the subpoena.
MinTrade opposed, reprising Marin’s arguments, including that MinTrade’s
documents were not sufficiently relevant to the Traders Café FOI. (MinTrade did
not, however, contest personal jurisdiction.) Afterwards, the SEC filed a
declaration from Weismann in support of its application. On April 4, 2019,
Gentile moved to intervene. His motion attached the transcript of the earlier Marin
hearing, making Weismann’s Marin testimony part of the record in MinTrade’s
case. The district court denied Gentile’s motion.
On July 8, 2019, without holding a hearing, a magistrate judge issued an
R&R recommending that the district court grant the SEC’s application and enforce
the subpoena. The judge found that even though the connections between
MinTrade and SureTrader may have been “tenuous,” the requested documents
were relevant to the SEC’s investigation into whether Gentile and SureTrader had
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engaged in unregistered broker-dealer conduct in violation of the Exchange Act of
1934.
On November 8, 2019, without first conducting an evidentiary hearing, but
after “independently review[ing] the Report, the record, [MinTrade’s] objections
[to the R&R] and [the SEC’s] response, and applicable case law,” the district court
adopted the R&R. The court also granted the SEC’s application for a show cause
hearing. At the hearing, MinTrade’s counsel argued for the first time that United
States v. Powell, 379 U.S. 48 (1964), required the court to hold an evidentiary
hearing to ensure that there was a sufficient nexus between MinTrade and the
Traders Café FOI. The district court asked whether MinTrade had sought a
hearing from the magistrate judge, observing that, “if you have not asked for one
then I think that ship has sailed.” Counsel for the SEC explained that MinTrade
had not requested a hearing, but added that the Weismann declaration could serve
as a basis for the factual findings in the R&R. After the hearing, the court issued
still another order affirming and adopting the magistrate judge’s R&R.
These timely appeals followed.
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II.
We discuss Marin’s personal jurisdiction argument first and then turn to the
claims that the subpoenas are not relevant to a legitimate investigative purpose.
We review a district court’s order concerning personal jurisdiction de novo.
Managed Care Advisory Grp., LLC v. CIGNA Healthcare, Inc., 939 F.3d 1145,
1153 (11th Cir. 2019) (citation omitted). In order to answer this question, “we first
determine whether the applicable statute potentially confers jurisdiction over the
defendant, and then determine whether the exercise of jurisdiction comports with
due process.” Republic of Panama v. BCCI Holdings (Luxembourg) S.A., 119
F.3d 935, 942 (11th Cir. 1997).
A.
As for the first issue (the statutory basis for personal jurisdiction), “[w]hen a
federal statute provides for nationwide service of process, it becomes the statutory
basis for personal jurisdiction” over a person served according to the statute. Id.;
see also SEC v. Carrillo, 115 F.3d 1540, 1543 (11th Cir. 1997) (“[S]ervice of
process constitutes the vehicle by which the court obtains jurisdiction.”) (quotation
marks omitted). Here, the SEC initiated the subpoena enforcement proceeding
pursuant to a statute that provides for nationwide service of process, 15 U.S.C. §
78u(c): when a person refuses to obey an SEC subpoena, the SEC “may invoke the
aid of any court of the United States within the jurisdiction of which [its]
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investigation . . . is carried on,” and may serve process on the target of the
subpoena “in the judicial district whereof such person is an inhabitant or wherever
he may be found.” 15 U.S.C. § 78u(c); see also Carrillo, 115 F.3d at 1544 & n.4
(noting that federal securities laws that similarly authorize service of process in
any district “of which the defendant is an inhabitant or wherever the defendant may
be found” provide for nationwide service of process). The SEC served Marin at
her New York address. The SEC nationwide service of process statute provides a
basis for personal jurisdiction over Marin.
B.
As for the second question (due process), “when, as here, a federal statute
provides the basis for jurisdiction, the constitutional limits of due process derive
from the Fifth, rather than the Fourteenth, Amendment.” BCCI Holdings, 119 F.3d
at 942. “The exercise of personal jurisdiction comports with due process when (1)
the nonresident defendant has purposefully established minimum contacts with the
forum and (2) the exercise of jurisdiction will not offend traditional notions of fair
play and substantial justice.” Carrillo, 115 F.3d at 1542 (quotation marks omitted)
(alteration accepted).
The Fifth Amendment’s Due Process Clause, like the Fourteenth’s, is
“designed to protect individuals by providing them with fair notice that their
activities will render them liable to suit in a particular forum.” BCCI Holdings,
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119 F.3d at 945 (citation omitted). “This fair warning requirement is satisfied if
the defendant has purposefully directed his activities at residents of the forum.” Id.
(quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985)) (internal
quotation marks omitted) (alterations accepted). To determine whether a person
has purposefully directed activities at the forum, we ask whether the individual has
sufficient “minimum contacts” with the forum. See, e.g., Carillo, 115 F.3d at
1542. Where, as here, the Fifth Amendment applies because personal jurisdiction
is based on a federal statute authorizing nationwide service of process, “the
applicable forum for minimum contacts purposes is the United States,” not the
state in which the district court sits. Id. at 1544; BCCI Holdings, 119 F.3d at 945
n.16, 946–47, 946 n.21 (“Because minimum contacts with the United States -- the
relevant sovereign -- satisfy the ‘purposeful availment’ prong in federal question
cases, contacts with the forum state are not constitutionally required.”). Thus, a
United States resident or business, which necessarily has “directed . . . activities at
the United States” “through [her] choice of residence or incorporation,” satisfies
the purposeful availment component of Fifth Amendment due process analysis.
BCCI Holdings, 119 F.3d at 945 n.16.
Marin is a United States citizen who lives in New York. She is the owner
and sole employee of Mint Custody, a Delaware corporation. She has purposely
directed activities at the United States, including activities relevant to the SEC’s
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subpoenas (SureTrader and Gentile transferred U.S. customer funds from overseas
to Mint Custody’s U.S. bank account; Marin signed for these transactions, and
distributed funds in the United States). Marin’s contacts with the United States
easily satisfy the purposeful availment requirement.
That does not end our analysis: “A defendant’s ‘minimum contacts’ with the
United States do not . . . automatically satisfy the due process requirements of the
Fifth Amendment.” Id. at 947. “Once it has been established that a defendant has
purposefully directed his activities at a particular forum, courts still should
determine if the assertion of personal jurisdiction would comport with fair play and
substantial justice.” Id. at 945 (internal quotation marks omitted) (quoting Burger
King, 471 U.S. at 476). In order to apply these considerations in the Fifth
Amendment context, we ask first whether the party challenging jurisdiction has
“presented a compelling case” that the exercise of jurisdiction would be so
unreasonable that the party’s “liberty interests have actually been infringed.” Id. at
946 (citations omitted) (alteration accepted). If, and only if, the challenging party
has made this showing, we proceed to “balance the burdens imposed on the
individual defendant against the federal interest involved in the litigation.” Id.
Marin has not established that litigating the enforcement of these subpoenas
in the Southern District of Florida would pose a “constitutionally significant
inconvenience” that would infringe her liberty interests. Id. To be sure, “[t]here
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are circumstances, although rare, in which a defendant may have sufficient
contacts with the United States as a whole but still will be unduly burdened by the
assertion of jurisdiction in a faraway and inconvenient forum.” Id. at 947. Thus,
“even when a defendant resides within the United States, courts must ensure that
requiring a defendant to litigate in [the] plaintiff’s chosen forum is not
unconstitutionally burdensome.” Id. Still, “it is only in highly unusual cases that
inconvenience will rise to a level of constitutional concern.” Id. “The burden is on
the defendant to demonstrate that the assertion of jurisdiction in the forum will
make litigation so gravely difficult and inconvenient that [she] unfairly is at a
severe disadvantage in comparison to [her] opponent.” Id. at 948 (quotation marks
omitted).
Marin has not come close to meeting this substantial burden. Marin says
that she has no contacts with Florida and lives some 1,300 miles from Miami,
where the district court sits. This argument misses the mark, for “a defendant’s
contacts with the forum state play no magical role in the Fifth Amendment
analysis.” Id. at 946; see also id. at 948 (where defendants had conducted business
throughout the eastern seaboard, “[t]he fact that they may not have had significant
contacts with Florida [was] insufficient to render Florida an unreasonably
inconvenient forum.”).
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Moreover, Marin has not presented any reason to believe that responding to
the subpoena in Miami would impose a constitutionally significant burden. “There
is nothing inherently burdensome about crossing a state line.” Id. at 946 (quoting
Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure, Civil 2d §
1067.1, at 327 (1990)). Even in 1988, we observed that “[m]odern means of
communication and transportation have lessened the burden of defending a lawsuit
in a distant forum.” In re Chase & Sanborn Corp., 835 F.2d 1341, 1346 (11th Cir.
1988), rev’d on other grounds sub nom. Granfinanciera, S.A. v. Nordberg, 492
U.S. 33 (1989). Even more so today. The airports serving metropolitan New York
dispatch many hundreds of flights a day to Florida, more than 200 to Miami alone.
Flying to Florida is no more unusual in New York than following Duke Ellington’s
famous counsel to take the A train.
What’s more, contesting a subpoena does not present the same burden as
defending a full-scale trial proceeding. Complying with the subpoenas would be
less burdensome still. Indeed, in this case, Marin need not travel at all to comply
with the document subpoena; all she must do is arrange for delivery of the relevant
documents to the SEC’s Washington, DC office. Moreover, she may not have to
travel to Miami in order to comply with the subpoena for her testimony, since the
SEC previously expressed willingness to take her testimony in New York City,
some 60 miles from her home in Putnam County. But even if the SEC were to
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require her presence in Miami, Miami is a short direct flight from New York City’s
airports. Any trip likely would not require a lengthy stay: each time the SEC
previously proposed a schedule for Marin’s testimony, the schedule contemplated
only one day of testimony.
In short, Marin has not presented any evidence, much less “a compelling
case,” that contesting or complying with the subpoenas would present a
“constitutionally significant inconvenience.” BCCI Holdings, 119 F.3d at 946
(quotation marks omitted). We, therefore, need not balance any burden on Marin
against the federal interest in proceeding in the Southern District of Florida. Id. at
948.
In any event, however, contrary to Marin’s suggestion, the SEC’s decision to
proceed in the Southern District of Florida was hardly “unreasonable” or
“arbitrary.” The SEC is free to enforce its subpoenas by invoking the “aid of any
court of the United States within the jurisdiction of which [its] investigation or
proceeding is carried on . . . .” 15 U.S.C. § 78u(c) (emphasis added). The SEC has
conducted the Traders Café investigation out of its Miami office, where it is
investigating the United States activities of a Bahamian entity (SureTrader) and its
owner and CEO, a resident of Puerto Rico. The investigation also extends to
entities based in Tampa and West Palm Beach (Traders Café and MinTrade). The
Southern District of Florida is a logical place to center the investigation.
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The district court’s exercise of personal jurisdiction was proper.
III.
Moreover, the district courts did not abuse their discretion in enforcing the
subpoenas to Marin and to MinTrade.
We review de novo “whether an agency had authority to issue an
administrative subpoena and a district court’s interpretation and application of”
relevant statutes. Managed Care Advisory Grp., 939 F.3d at 1153; see also United
States v. Fla. Azalea Specialists, 19 F.3d 620, 622 (11th Cir. 1994). But we review
a district court’s decision to enforce a subpoena only for abuse of discretion. See
McLane Co. v. EEOC, 137 S. Ct. 1159, 1167 (2017), as revised (Apr. 3, 2017);
Managed Care Advisory Grp., 939 F.3d at 1153. “A district court abuses its
discretion if it applies an incorrect legal standard, applies the law in an
unreasonable or incorrect manner, follows improper procedures in making a
determination, or makes findings of fact that are clearly erroneous.” United States
v. Estrada, 969 F.3d 1245, 1261 (11th Cir. 2020) (quotation omitted).
“A district court’s role in a proceeding to enforce an administrative
subpoena is limited.” EEOC v. Tire Kingdom, Inc., 80 F.3d 449, 450 (11th Cir.
1996). To obtain judicial enforcement of an administrative subpoena, an agency
such as the SEC must establish four things: “[1] that the investigation will be
conducted pursuant to a legitimate purpose, [2] that the inquiry may be relevant to
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the purpose, [3] that the information sought is not already within the [agency’s]
possession, and [4] that the administrative steps required . . . have been
followed . . . .” Powell, 379 U.S. at 57–58 (applying these criteria to an IRS
summons); United States v. Clarke, 573 U.S. 248, 250 (2014) (same); see, e.g.,
RNR Enters., Inc. v. SEC, 122 F.3d 93, 96 (2d Cir. 1997) (applying the Powell
requirements to SEC subpoenas); cf. SEC v. Jerry T. O’Brien, Inc., 467 U.S. 735,
749 (1984) (assuming arguendo that the target of an SEC investigation has a right
to be investigated in a manner consistent with the Powell standards).
All the agency must do in the first instance is make out a prima facie
showing that the Powell criteria are met. See United States v. Centennial Builders,
Inc., 747 F.2d 678, 680 (11th Cir. 1984); United States v. Transocean Deepwater
Drilling, Inc., 767 F.3d 485, 489 (5th Cir. 2014) (“The Government bears the
initial burden to show that the criteria have been met, although the burden to make
a prima facie case is minimal.”) (internal quotation marks omitted). The agency
can accomplish this through an investigator’s affidavit. See Clarke, 573 U.S. at
250, 254; In re McVane, 44 F.3d 1127, 1136 (2d Cir. 1995) (“An affidavit from a
government official is sufficient to establish a prima facie showing that these
requirements [of relevance to the general purposes of the agency’s investigation]
have been met.”). “Once the government makes this preliminary showing, the
burden shifts to the [subpoena recipient] to disprove one of the four Powell criteria,
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or to demonstrate that judicial enforcement should be denied on the ground that it
would be an abuse of the court’s process.” Centennial Builders, Inc., 747 F.2d at
680 (quotation marks omitted); see also Clarke, 573 U.S. at 254.
On appeal, Marin and MinTrade challenge the district courts’ holdings on
the first and second Powell requirements, claiming that the investigation was not
conducted for a legitimate purpose and the subpoenas were not relevant to any
such purpose. Powell, 379 U.S. at 57.
A.
The SEC issued the Marin and MinTrade subpoenas pursuant to a legitimate
investigative purpose. The SEC enjoys broad, discretionary power to investigate
past, ongoing, or imminent violations of the Exchange Act. 15 U.S.C. § 78u(a)(1);
17 C.F.R. § 202.5(a); see also Fla. Azalea Specialists, 19 F.3d at 622 (noting the
“broad investigatory power of administrative agencies”). The SEC’s investigatory
power is analogous to the power of a grand jury, “which does not depend on a case
or controversy for power to get evidence but can investigate merely on suspicion
that the law is being violated, or even just because it wants assurance that it is not.”
Id. (quoting United States v. Morton Salt Co., 338 U.S. 632, 642–43 (1950)). This
power is not without limits: “a governmental investigation . . . may be of such a
sweeping nature and so unrelated to the matter properly under inquiry as to exceed
the investigatory power.” Morton Salt Co., 338 U.S. at 652 (citation omitted).
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Still, “it is sufficient if the inquiry is within the authority of the agency, the demand
is not too indefinite and the information sought is reasonably relevant.” Id.; Tire
Kingdom, Inc., 80 F.3d at 450.
Marin and MinTrade attack the legitimate purpose of the subpoenas by
disputing the scope and validity of the Traders Café FOI. They claim that “the
SEC only has subpoena authority pursuant to a formal investigation” and that “the
only legitimate purpose of an SEC investigative subpoena is that it is relevant to
the matter contained in a formal investigative order.” They insist that the terms of
the Traders Café FOI do not extend so far as to authorize the investigation of
SureTrader and Gentile. Thus, Marin and MinTrade say the subpoenas they
received -- which seek information about SureTrader and Gentile, not Traders Café
or its direct affiliates -- are beyond the scope of the FOI, and therefore lack a
legitimate purpose. Marin and MinTrade also argue that the Traders Café FOI is
too old to justify an ongoing investigation and is therefore invalid. MinTrade
claimed in district court that this proceeding “appears to be a mere pretext to dig
into the affairs of anyone connected to Gentile, rendering [it] abusive and
improper.”
1. Scope of the Traders Café FOI
For starters, Marin and MinTrade read the FOI too narrowly. The Traders
Café FOI broadly directed that “a private investigation be made to determine
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whether any persons or entities have engaged in, or are about to engage in, any of
the reported acts or practices [including unregistered broker-dealer activity] or any
acts or practices of similar purport or object.”
Moreover, the FOI’s terms extend to SureTrader and Gentile. The SEC’s
investigative powers are not limited to the specific entities named in a formal
order. See Jerry T. O’Brien, Inc., 467 U.S. at 749 (“The SEC often undertakes
investigations into suspicious securities transactions without any knowledge of
which of the parties involved may have violated the law.”); RNR Enters., Inc., 122
F.3d at 98 (statutes and regulations governing the SEC do not “require that the
order authorizing the investigation target by name a specific company or person
suspected of violating securities laws”).
Thus, the FOI authorizes investigation into whether Traders Café and its
“officers, directors, employees, partners, subsidiaries, and/or affiliates, or other
persons or entities” violated or are about to violate the prohibition on unregistered
broker-dealer activity. The Traders Café investigation led the SEC to SureTrader,
where Traders Café maintained a “master account.” The SEC discovered that
SureTrader is a Bahamian broker-dealer and that neither SureTrader nor its owner
and CEO Gentile are registered as broker-dealers in the United States. Yet at least
half of SureTrader’s clients are United States residents. So the SEC began
investigating whether SureTrader and Gentile were engaged in unregistered
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broker-dealer business in the United States. The scope of the SEC’s investigation
includes “whether [SureTrader’s] customers include United States residents, the
solicitation of U.S. customers, and the movement of customer funds.” SureTrader
and Gentile are “other persons or entities” that the SEC may investigate for
unregistered broker-dealer activity under the terms of the FOI.
MinTrade argues nevertheless that the FOI cannot apply to MinTrade
because MinTrade “did not even exist at the time [the Traders] Café FOI was
issued” (the SEC issued the FOI in 2013; MinTrade incorporated in 2017). But
“there is no requirement that the scope of the investigation be limited to companies
that existed before the Formal Order was issued where . . . the Formal Order
expressly provide[s] that the investigation would encompass persons who ‘are
about to engage’ in the alleged acts, and the Order remained in effect at the time
the subpoenas were issued.” RNR Enters., Inc., 122 F.3d at 98. Here, the Traders
Café FOI states that it applies to persons or entities who “are about to engage in”
enumerated securities violations, including unregistered broker-dealer conduct.
Congress’s broad grant of investigative authority to the SEC does not contemplate
a game of cat and mouse whereby the SEC must issue another formal order of
investigation each time an investigation yields a new lead.
Marin and MinTrade further claim that relying on Traders Café’s
maintenance of a master account at SureTrader in order to establish a nexus
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between Traders Café, SureTrader, Marin, and MinTrade would sanction the
issuance of subpoenas to any of SureTrader’s “20,000+ clients” and anyone
connected to any of those “20,000+ clients.” But none of this has happened here.
The SEC has reason to believe that SureTrader engaged in the very conduct --
unregistered broker-dealer business -- that the Traders Café FOI authorized the
SEC to investigate. Both Marin and MinTrade at least arguably are tied to this
activity in ways SureTrader’s run of the mill clients likely are not. SureTrader and
Gentile used Marin’s firm to move customer money from overseas into the United
States, and MinTrade’s registered agent is the trustee of the trust through which
SureTrader’s owner and CEO owns another firm that cleared trades for
SureTrader. Furthermore, the breadth of an SEC investigation does not alone
render it invalid. Cf. RNR Enters., Inc., 122 F.3d at 97 (Statutes and regulations
governing the SEC “do not preclude an industry-wide administrative investigation
of possible securities law violations where, as set forth in the Formal Order,
information before the SEC shows that violations of federal securities laws may
have occurred on an industry-wide basis”).
2. Age of the Traders Café FOI
Marin and MinTrade also claim that the subpoenas are not tied to a
legitimate investigative purpose because the 2013 Traders Café FOI is subject to a
five-year “durational limit” based on the provision found in 28 U.S.C. § 2462 that
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“an action, suit or proceeding for the enforcement of any civil fine, penalty, or
forfeiture, pecuniary or otherwise, shall not be entertained unless commenced
within five years from the date when the claim first accrued . . . .” In Gabelli v.
SEC, the Supreme Court held that an SEC claim for a civil monetary penalty
accrues for § 2462 purposes at the time of a defendant’s securities law violation,
rather than at the time the SEC discovers the violation. 568 U.S. 442, 448–54
(2013). Since an SEC penalty action based on violations that had occurred by the
time of the 2013 Traders Café FOI would be time-barred under Gabelli, Marin and
MinTrade reason that the Traders Café FOI is “invalid” and cannot supply a
legitimate purpose for the SEC’s subpoenas.
This argument overlooks two basic points. First, § 2462 does not apply to
these proceedings. A proceeding to enforce a subpoena is not “an action, suit or
proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary
or otherwise.” 28 U.S.C. § 2462. This much is clear from the text, and from the
Supreme Court’s guidance that “penalt[ies]” in this context include only remedies,
such as disgorgement, that “go beyond compensation, are intended to punish, and
label defendants wrongdoers.” See Kokesh v. SEC, 137 S. Ct. 1635, 1643 (2017)
(quoting Gabelli, 568 U.S. at 451–52). The enforcement of a subpoena does no
such thing. See Jerry T. O’Brien, Inc., 467 U.S. at 741 (“Subpoenas issued by the
[SEC] are not self-enforcing, and the recipients thereof are not subject to penalty
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for refusal to obey.”). Perhaps a contempt citation for failing to obey a court order
requiring compliance with an SEC subpoena would be a “penalty” within the ambit
of § 2462. But we need not decide this issue, because the SEC has not sought the
sanction of contempt in this case. Nor has it sought any civil fine, penalty, or
forfeiture. All it has asked for is an order from the district court enforcing its
subpoenas. Moreover, even were § 2462 to apply to these subpoena enforcement
proceedings, its limitation period would not have run. The SEC brought the
enforcement actions in 2019, not long after it issued the subpoenas in 2017 and
2018, and surely within the five-year window prescribed in § 2462.
Second, even setting aside that § 2462 does not apply to these proceedings,
that a statute of limitations might bar some enforcement actions related to an FOI
does not render the FOI invalid. The FOI here notes that Traders Café or other
persons or entities “may have been or may be” engaging in unregistered broker-
dealer activity. So possible violations may have continued well past 2013; indeed,
they may still be ongoing. A recent violation could touch off a timely enforcement
proceeding. And should the SEC discover some violation that occurred more than
five years ago, the SEC could seek a remedy not subject to the § 2462 time limit,
such as injunctive relief, which in some circumstances does not amount to a
“penalt[y] within the meaning of § 2462.” SEC v. Graham, 823 F.3d 1357, 1362
(11th Cir. 2016); see also SEC v. Gentile, 939 F.3d 549, 556 (3d Cir. 2019), cert.
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denied, 140 S. Ct. 2669 (2020). Simply put, § 2462 does not at the outset block the
SEC from reasonably inquiring whether there are violations for which timely
remedies may be available.
The FOI remains valid, and it supplies a legitimate purpose for the
subpoenas issued to Marin and MinTrade.
B.
Marin and MinTrade argue still further that the district courts erred in
finding the subpoenaed information relevant to the investigation into SureTrader
and Gentile.
“The measure of relevance used in [administrative] subpoena enforcement
actions is quite broad.” Fla. Azalea Specialists, 19 F.3d at 624; see also Sandsend
Fin. Consultants, Ltd. v. Fed. Home Loan Bank Bd., 878 F.2d 875, 882 (5th Cir.
1989) (an administrative subpoena will survive a relevancy challenge so long as it
“touches a matter under investigation”) (quotation marks omitted); 15 U.S.C. §
78u(c) (SEC may invoke the aid of a district court to enforce a subpoena, and the
court may order production of records or testimony “touching the matter under
investigation or in question”). The relevance assessment is “well suited to a
district judge’s expertise.” McLane Co., 137 S. Ct. at 1167. Where, as here, the
question of relevance “is essentially a factual determination concerning the
interrelation or lack thereof of different groups of facts, we must uphold the district
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court’s determination unless it is clearly erroneous.” EEOC v. Packard Elec. Div.,
Gen. Motors Corp., 569 F.2d 315, 318 (5th Cir. 1978)1; see also RNR Enters., Inc.,
122 F.3d at 97.
As we have explained, the SEC bears only a minimal burden of presenting a
prima facie case that its subpoenas satisfy each Powell factor, including the
relevance factor. See Centennial Builders, Inc., 747 F.2d at 680. An agency
affidavit may be sufficient to meet this burden. See Clarke, 573 U.S. at 250, 254;
McVane, 44 F.3d at 1136.
In Marin, the magistrate judge relied on the exhibits attached to the SEC
application and on Assistant Regional Director Weismann’s testimony. Where an
affidavit suffices, so too does sworn hearing testimony subject to cross
examination. And Weismann’s testimony supported the allegations in the SEC’s
application. Weismann testified that her investigation had revealed that
SureTrader and Gentile deposited U.S. customer funds from overseas into Mint
Custody’s account, funds Marin then distributed -- the subpoenas to Marin were
therefore “critical” to the SEC’s investigation of whether SureTrader and Gentile
were unlawfully soliciting U.S. customers.
1
Decisions the former Fifth Circuit issued prior to the close of business on September 30, 1981
are binding on this Court. See Bonner v. City of Pritchard, 661 F.2d 1206, 1209 (11th Cir. 1981)
(en banc).
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For MinTrade’s part, the record before the district court included both the
transcript of Weismann’s Marin testimony and Weismann’s written declaration
filed under penalty of perjury. 2 Weismann stated in her declaration that
MinTrade’s registered agent, Nicholas Abadiotakis, is the trustee of a trust through
which Gentile owned a majority interest in Stock USA, a “Gentile affiliate” that
cleared trades for SureTrader (Abadiotakis was also a trader at Stock USA).
In light of Weismann’s account, the subpoenas made sense. While the
document subpoenas seek general information about Mint Custody and
MinTrade’s businesses, they also ask for specific information about their
relationships to SureTrader and Gentile, the current subjects of the SEC’s
investigation (the subpoena for Marin’s testimony does not specify subject matter).
The Marin documents subpoena requests communications concerning Mint
Custody by, to, or including SureTrader and Gentile, and the MinTrade subpoena
2
While MinTrade is correct that these papers were not in the record when MinTrade filed its
opposition to the SEC application, they were part of the record by the time the magistrate judge
issued the R&R and when the district court affirmed and adopted the recommendation to grant
the SEC’s application for an order to show cause. MinTrade could have responded to
Weismann’s testimony and declaration when it objected to the R&R (indeed, the SEC cited both
documents in its response to MinTrade’s objections). When the district court adopted the R&R,
it had “independently reviewed the Report, the record, the objections and response, and
applicable case law.” The district court also granted a show cause hearing, at which the SEC
specifically referenced the sworn declaration in support of the application and argued that it
supported the R&R’s findings.
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requests documents “concerning the relationship between [MinTrade] and
SureTrader.”
The information the SEC requested from Marin and MinTrade was relevant
to SureTrader’s and Gentile’s potential unregistered broker-dealer conduct. In
turn, the investigation into SureTrader and Gentile was a part of the investigation
the Traders Café FOI authorized. The SEC adduced sufficient evidence to make a
prima facie showing of relevance, and the district courts did not clearly err in
finding the SEC had done so.
C.
Finally, MinTrade argues that the district court should have required the
SEC to prove compliance with the Powell criteria at an evidentiary hearing.
Unlike in Marin, Weismann did not testify in court in MinTrade. But the decision
whether to hold an evidentiary hearing in an administrative subpoena enforcement
proceeding is well within the discretion of the district court, and the district court
did not abuse that discretion here.
Administrative subpoena enforcement proceedings are “summary in nature.”
Clarke, 573 U.S. at 254 (quotation omitted). And an agency can establish
compliance with Powell by submitting an affidavit; once it has done so, the burden
shifts to the party challenging the subpoena to disprove compliance with one of the
Powell criteria. See id. at 250; Centennial Builders, Inc., 747 F.2d at 680. Thus, in
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Clarke, the Supreme Court rejected a categorical requirement that a district court
give a taxpayer challenging an IRS summons under Powell’s legitimate purpose
requirement an opportunity to question the IRS agents about their motives. 573
U.S. at 255. Instead, the Court held that once the IRS had established prima facie
compliance with Powell, the taxpayer could obtain a hearing only by “point[ing] to
specific facts or circumstances plausibly raising an inference of bad faith.” Id. at
254. “[B]are assertion or conjecture is not enough.” Id. The Court also
emphasized that the decision whether to permit examination was within the district
court’s discretion, which “reflects the district court’s superior familiarity with, and
understanding of, the dispute.” Id. at 256; see also SEC v. Knopfler, 658 F.2d 25,
26 (2d Cir. 1981) (“[I]t is within the discretion of the district court to determine
whether or not an evidentiary hearing is required” in an SEC subpoena
enforcement proceeding).3
Here, the district court acted within its discretion to deny an evidentiary
hearing. MinTrade did not point to specific facts plausibly raising an inference
3
The Third and Ninth Circuits have said district courts must hold evidentiary hearings in SEC
subpoena enforcement proceedings, but these decisions are in tension with the Supreme Court’s
more recent guidance in Clarke. See SEC v. Wheeling-Pittsburgh Steel Corp., 648 F.2d 118, 128
(3d Cir. 1981); Jerry T. O’Brien, Inc. v. SEC, 704 F.2d 1065, 1067 (9th Cir. 1983), rev’d on
other grounds, 467 U.S. 735 (1984).
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that the SEC did not comply with one of the two Powell factors MinTrade
challenged -- a legitimate investigative purpose and relevance to that purpose.4
As for the issue of relevance, MinTrade made no factual claims of its own in
district court; rather it argued that the SEC lacked evidence to support its case for
relevance and that the terms of the FOI did not extend to MinTrade. But an
evidentiary hearing was not necessary to determine whether the SEC met its prima
facie Powell burden. The district court was presented with the Weissman
declaration and Weissman transcript. As for a legitimate purpose, MinTrade relies
on the same legal arguments it offered about the scope and validity of the FOI, and
the conclusory claim that the SEC’s investigation was a “pretext to dig into the
affairs of anyone connected to Gentile, rendering this present Application abusive
and improper.” In the absence of anything specific to rebut the SEC’s prima facie
Powell showing, the district court acted within its “broad discretion to determine”
that no evidentiary hearing was required. See Clarke, 573 U.S. at 256. This is
especially so where MinTrade also had the opportunity to make its case at a show
4
We can discern no reason why the Supreme Court’s rationale in Clarke regarding the legitimate
purpose requirement should not also apply to other Powell criteria. MinTrade attempts to
distinguish Clarke on the ground that the respondent there challenged enforcement of the
summons based on alleged IRS “ulterior motive[s].” 573 U.S. at 251 (quotation omitted). [But
of course, MinTrade also imputes to the SEC the improper motive of pretextually “dig[ging] into
the affairs of anyone connected to Gentile.” And Clarke’s reasoning applies with equal force to
MinTrade’s other objection, to the relevancy of the subpoenas: absent any specific factual or
circumstantial assertions that cast doubt on relevance -- that is, absent a conflict of evidence to
resolve -- the district court had no reason to hold an evidentiary hearing.
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cause hearing. In fact, MinTrade did not even request an evidentiary hearing until
the show cause hearing, well after briefing before the magistrate judge and after
the district court’s first order adopting the magistrate judge’s R&R.
***
In short, based on our review of the entire record, we have little difficulty
affirming the district courts’ orders requiring Marin and MinTrade to comply with
the subpoenas.
AFFIRMED.
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