• Adviser’s Non Compliance With SEC Subpoena Settled by Court
  • October 3, 2014 | Authors: Peter D. Fetzer; Terry D. Nelson
  • Law Firms: Foley & Lardner LLP - Milwaukee Office ; Foley & Lardner LLP - Madison Office
  • The SEC’s subpoena powers under the Investment Advisers Act of 1940 were recently affirmed by a court over the objections of the owner and operator of a SEC registered investment advisory firm (see SEC v. Stilwell, 2014 BL252718, S.D.N.Y., 1:14-mc-257 (ALC), 9/11/14).

    The owner and operator of the advisory firm objected to the issuance of the SEC’s subpoena which required his testimony about, among other things, allegedly false statements made by his firm in connection with certain investment funds under its management. Because a member of the SEC’s staff told the owner that the SEC would be initiating enforcement proceedings in the matter, the owner objected to the subpoena because the SEC did not need his testimony and the subpoena served no “legitimate investigatory purpose.”

    The SEC argued to the court that it had reached only “tentative conclusions” whether or not to proceed with enforcement proceedings against the advisory firm and needed additional evidence via the owner’s testimony to make a “final” enforcement decision. The court agreed with the SEC and ruled that the SEC showed that its subpoena was not issued for wrongful purposes. According to the court, the owner failed to refute the presumption that the subpoena was issued for appropriate purposes.

    Although the SEC’s subpoena authority generally is unquestioned, it is likely, as a result of this matter where a U.S. court was required to weigh in on the SEC’s subpoena authority, there will be a directive sent out by the SEC to staff, to keep their comments to themselves as to whether enforcement proceedings will be brought prior to the completion of the SEC’s investigation and gathering of evidence.