                                              The Attorney       General of Texas

    JIM MATTOX                                            December 19, 1983
    AttorneyGeneral


    Supreme      Court Building             Mr. Richard D. Latham                  Opinion No. JM-101
    P. 0. Box 12546                         securities commissioner
    Austin, TX. 76711. 2546                                                        Re: Effect of Senate Bill No.
                                            State Securities Board
    5121475.2501
    Telex    910/674-1367
                                            1800 San Jacinto                       429 regarding subpoenas for
    Telecopier      5121475.0266            Austin, Texas   78711                  bank records

                                            Dear Mr. Latham:
    714 Jackson,   Suite 700
    Dallar,, TX. 75202.4506
    2141742-6944
                                                You have asked the following questions:

                                                        1. Does    section 1    of   article 342-705,
    4624 Alberta       Ave.. Suite    160            V.T.C.S., as amended by Senate Bill No. 429, Acts
    El Paso, TX.       79905-2793
                                                     of the Sixty-eighth Legislature, Regular Session,
    9151533.3464
                                                     restrict   the   authority   of   the   securities
-                                                    commissioner to issue subpoenas to banks for
     ,131 Texas.   Suite 700                         records of bank'accounts or other bank records
    Houston,    TX. 77002-3111                       pursuant to investigations conducted under section
    713/223-5666                                     28 of the Securities Act, article 581, V.T.C.S.?

    606 Broadway.        Suite 312
                                                        2.  Do .&he advance notice and challenge
    Lubbock.     TX.    79401-3479                   provisions of sections 2 and 3 of article 342-705
    6061747.5236                                     as amended by Senate Bill No. 429 apply to
                                                     subpoenas issued to banks by the securities
                                                     commissioner in investigations conducted under
    4369 N. Tenth, Suite B
    McAllen,     TX. 76501.1665
                                                     section 28 of the Securities Act?
    5121662-4547
                                            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
    200 Main Plaza. Suite 400
                                            Bill No. 429, Acts 1983, Sixty-eighth Legislature, chapter 525, at
    San Antonio,  TX. 76205.2797
    5121225-4191
                                            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
    An Equal       Opportunity/             article 342-705 as likewise amended apply to such subpoenas issued in
    Affirmative      Action     Employer
                                            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 Ins20 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




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