(N.Y. Gen. Bus. Law § 352(2)); 18 U.S.C. §3486
Under New York’s Martin Act, the Attorney General has a lot of power to investigate allegations of securities fraud, and to bring civil or criminal actions against those who have committed said fraud. The Martin Act has allowed a lot of discretion and breadth to the Attorney General in the kinds of cases it can investigate as well. Securities are now considered to be many general kinds of investments, including mortgage notes or membership interest in a real estate venture. The Martin Act also allows the Attorney General to subpoena witnesses (or suspects) to provide either testimony or documentation.
If you are served with a subpoena from the Attorney General’s office, it is a good idea to seek legal counsel immediately to determine your rights and limits under the law. They can also advise you as to whether or not the subpoena you received is overly broad or ambiguous, thus preventing you from having to full answer or allowing you extra time. They may need to object or ask the Court for a motion to quash. Your response to the subpoena must preserve any and all objections, which include objections as to vagueness or overbreadth, or even objections if the documents or testimony could reveal privileged communication – such as the attorney-client privilege or a constitutional protection, as granted under the 5th Amendment.
If you receive a subpoena, you should also ensure you are not destroying or removing any documentary evidence – including electronic documentation. If you destroy any documents, particularly if you are aware of a case that could involve said documents, you could be held liable under the theory of ‘spoiliation,’ which carries with it civil and criminal penalties. Finally, your lawyer can potentially challenge the subpoena by challenging the basis of the Attorney General’s investigation. These inquiries and investigations must be ‘based on possible violations of law.’ Therefore, another objection to the subpoena could be that the bases of said investigation are either inappropriate, or premature.
The Federal government has similarly broad powers, requiring only that subpoenas be issued in ‘Good Faith.’ The Supreme Court clarified this issue with the ‘Powell factors’: 1) the investigation must be conducted pursuant to a legitimate purpose, 2) the information sought is relevant to that purpose; 3) the agency does not already have the information sought, and 4) the agency has followed the required administrative steps in the issuance of the subpoena. The subpoena will be enforced unless the subpoena is plainly ‘incompetent or irrelevant to any lawful purpose of the agency in the discharge of its statutory duties.’ Therefore, if you receive a subpoena, either from New York State or the Federal government, you will very likely be required to comply unless you can show the information sought is irrelevant. An attorney skilled with both state and federal investigations will be able to counsel you on the steps you should take in responding. Failing to respond could lead to civil or criminal penalties, including contempt of court.
One recent subpoena from the New York Attorney General Eric Schneiderman has been controversial. He has subpoenaed a think-tank with ties to Exxon and other fossil fuels giants in an investigation concerning their attempts to cover-up evidence of climate change. The Attorney General has made a case of potential business and consumer fraud against these parties. Some of the responses from those who have been subpoenaed have accused the Attorney General of attempting to criminalize free speech and intimidate companies and scientists from disseminating ideas. The investigation is still in its early stages, but it will be an interesting case to watch to learn what the subpoenas, if required to be responded to, will yield.
