Did Texas bank-record notice and challenge rules restrict Securities Commissioner subpoenas in criminal securities investigations?

Texas AG Opinion JM-101: Bank-Record Subpoenas in Securities Investigations

Plain-English summary

JM-101 concluded that article 342-705 did not restrict the Texas Securities Commissioner's authority to subpoena bank records in criminal investigations under article 581-28. The statute's advance-notice and customer-challenge procedures also did not apply to those subpoenas.

"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 Bill No. 429 . . . 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 article 342-705 as likewise amended apply to such subpoenas issued in criminal investigations conducted under article 581-28."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

The result followed from an express exception stating that the act did not apply to criminal investigation or prosecution.

"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.'"
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

JM-101 limited its answer to subpoenas connected to criminal investigations. The opinion noted that the Board described nearly all formal investigations as involving suspected crimes, while some routine inquiries did not involve criminal offenses and ended without a formal investigation.

"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."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

Currency note

This opinion was issued in 1983. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What did article 342-705 ordinarily require for bank-record requests?

Section 1 limited the circumstances in which banks had to produce records. Section 2 required prior notice to the customer and certification to the bank, and section 3 let the customer seek a court order quashing the request.

"Section 1 of article 342-705, as amended, requires banks to produce their records only under certain circumstances."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

"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."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

"Section 3 allows the customer to seek a court order quashing the subpoena or other request."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

Why were Securities Commissioner investigations treated as criminal investigations?

The Securities Act required the commissioner to investigate violations and present evidence of criminal conduct to the proper district or county attorney. The act also contained criminal penalties.

"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."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

"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."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

"Article 581-29 of the Securities Act contains penal provisions."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

Where did the commissioner get subpoena power?

Article 581-28 authorized subpoenas concerning matters the commissioner had authority under the Securities Act to consider or investigate.

"The subpoena power of the commissioner is authorized by article 581-28 of the Securities Act."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

"The power relates 'to any matter which the Commissioner has authority by this Act to consider or investigate.'"
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

Did Senate Bill No. 429 affect most Board investigations described in the request?

JM-101 said it had essentially no effect on the vast majority because the Board reported that virtually all article 581-28 investigations involved suspected criminal offenses and possible prosecution.

"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."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

Background and legal framework

The first question asked whether amended article 342-705 restricted the commissioner's authority to subpoena banks for account or other bank records during Securities Act investigations. The second asked whether the statute's customer notice and challenge provisions applied.

"Does section 1 of article 342-705, V.T.C.S., as amended by Senate Bill No. 429 . . . restrict the authority of the securities commissioner to issue subpoenas to banks for records of bank accounts or other bank records pursuant to investigations conducted under section 28 of the Securities Act, article 581, V.T.C.S.?"
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

"Do the advance notice and challenge provisions of sections 2 and 3 of article 342-705 as amended by Senate Bill No. 429 apply to subpoenas issued to banks by the securities commissioner in investigations conducted under section 28 of the Securities Act?"
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

Article 342-705 addressed both adverse claims to deposits and requests for customer information. JM-101 dealt only with the records-request portion.

"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."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

Holding

"The amendments by Senate Bill No. 429 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 investigations."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0101
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0101.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain. The linked PDF is authoritative.

The Attorney General of Texas

JIM MATTOX
Attorney General

December 19, 1983

Mr. Richard D. Latham
Securities Commissioner
State Securities Board
1800 San Jacinto
Austin, Texas 78711

Opinion No. JM-101

Re: Effect of Senate Bill No. 429 regarding subpoenas for bank records

Dear Mr. Latham:

You have asked the following questions:

1. Does section 1 of article 342-705, V.T.C.S., as amended by Senate Bill No. 429, Acts of the Sixty-eighth Legislature, Regular Session, restrict the authority of the securities commissioner to issue subpoenas to banks for records of bank accounts or other bank records pursuant to investigations conducted under section 28 of the Securities Act, article 581, V.T.C.S.?

2. Do the advance notice and challenge provisions of sections 2 and 3 of article 342-705 as amended by Senate Bill No. 429 apply to subpoenas issued to banks by the securities commissioner in investigations conducted under section 28 of the Securities Act?

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 Bill No. 429, Acts 1983, Sixty-eighth Legislature, chapter 525, at 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 article 342-705 as likewise amended apply to such subpoenas issued in 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. 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. . . ."

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 finally 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 commissioner; and to engage in fraud or fraudulent practices in the sale of securities. If the fraud involves more than $10,000, the maximum penalty is 20 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. 429.

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 commissioner 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. 429 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 investigations.

JIM MATTOX
Attorney General of Texas

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