Case Customer/Movant Account Number for which
Number Records Subpoenaed
90 C 1485 Lake States 2502895
90 C 1487 Thomas W. Collins 3300030803
90 C 1488 Lake States 3300030803
90 C 1544 Thomas W. Collins 2502895
90 C 1545 John R. Wade 3300030803
90 C 1550 Bernard J. Miraglia 3300030803
90 C 1551 Bernard J. Miraglia 2502895
90 C 1552 Daniel J. Collins 2502895
90 C 1553 Daniel J. Collins 3300030803
90 C 1554 Edward M. Collins 3300030803
90 C 1555 Edward M. Collins 2502895
Although Account Nos. 2502895 and 3300030803 are listed with the banks as "partnership" accounts under the name of Lake States, the CFTC argues that Lake States is actually a corporation, not a partnership, and therefore it does not qualify as a protected "customer" under the RFPA. Consequently, although the CFTC served movants with notice of the subpoenas on the "partnership" accounts consistent with the provisions of the RFPA, see slip op. at p. 14, supra, it now contends that the movants have no cognizable rights under the RFPA vis a vis these two accounts because the bank records of a corporation are not within the scope of the RFPA. The Court finds the argument well taken.
In United States v. Miller, 425 U.S. 435, 442-43, 96 S. Ct. 1619, 1623-24, 48 L. Ed. 2d 71 (1976), the Supreme Court ruled that a bank customer holds no legitimate expectation of privacy with respect to the information contained in bank records, and that such records are consequently beyond the scope of the Fourth Amendment. The RFPA was enacted in response to the Court's holding in Miller. United States v. A Residence Located at 218 Third Street, New Glarus, Wisconsin, 805 F.2d 256, 260 (7th Cir. 1986); Hancock v. Marshall, 86 F.R.D. 209, 210 (D.D.C. 1980). By its own terms, the RFPA provides "the sole judicial remedy available to a customer to oppose disclosure of financial records . . . ." 12 U.S.C. § 3410(e); Sandsend, 878 F.2d at 876-77. Only "customers" are protected under the RFPA, and as the terms "customer" and "person" are defined by the statute, only individuals and partnerships of no more than five individuals can qualify as customers. 12 U.S.C. § 3401(4), (5). Thus, corporations have no basis on which to challenge the disclosure of their bank records to government agencies. Pittsburgh National Bank v. United States, 771 F.2d 73, 75-76 (3d Cir. 1985); Spa Flying Service, Inc. v. United States, 724 F.2d 95, 96 (8th Cir. 1984); United States v. Theron, 116 F.R.D. 58, 62 (D. Kan. 1987). See also Ridgeley v. Merchants State Bank, 699 F. Supp. 100, 102 (N.D.Tex. 1988) ("the few courts which have interpreted this statute . . . have adhered strictly to the explicit, unambiguous definition of customer found in the Act").
Here, both Lake States and the individual members of the purported Lake States "partnership" (Thomas Collins, Daniel Collins, Edward Collins, John Wade,
and Bernard J. Miraglia) have moved to quash the subpoenas for records concerning the two Lake States accounts. The Court assumes that if Lake States were in fact a partnership, each of these movants would have standing under the RFPA to challenge the subpoenas. However, the record reveals that Lake States is not in fact a partnership. Beyond the corporate records that the CFTC has attached to its memorandum, Lake States' own motions identify it as a corporation. Moreover, the sworn statement of Collins, which has been adopted by Daniel Collins, Edward Collins, Bernard Miraglia, and John Wade, argues that the records sought from the banks are identical to those already subpoenaed directly from "Lake States Commodities, Inc." (Collins Aff. para. 15) (emphasis supplied). Thus, there is no question that the Lake States "partnership" known to ANB and Palatine Bank is actually Lake States Commodities, Inc., an Illinois corporation. Consequently, Lake States, Collins, Daniel Collins, Edward Collins, Bernard Miraglia, and John Wade have no standing as "customers" under the RFPA to challenge the subpoenas on the Lake States accounts. It may be that ANB and Palatine Bank believed the Lake States accounts to be partnership accounts, but that belief alone is insufficient to confer standing on the putative partnership and its partners to challenge the subpoenas. A contrary ruling would permit corporations and corporate directors to bestow upon themselves privacy rights which neither the Constitution nor the RFPA provide, simply by misinforming banks as to their status. Cf. Jerry T. O'Brien, supra, 467 U.S. at 746, 104 S. Ct. at 2727 (In enacting the RFPA, "Congress enacted a set of carefully tailored limitations on the agencies' power, designed 'to strike a balance between customers' right of privacy and the need of law enforcement agencies to obtain financial records pursuant to legitimate investigations.'"), quoting H.R. Rep. No. 95-1383, p.33 (1978), U.S. Code Cong. & Admin. News 1978, p.9273 9305. Accordingly, the eleven motions listed above are dismissed due to the movants' lack of standing as "customers".
The Court's dismissal of the motions which were either untimely and/or for which the movants lack standing (see n. 9, supra) leaves only one motion for the Court to address on the merits: Case No. 90 C 1484, in which movant Thomas W. Collins challenges the subpoena issued to ANB for records pertaining to Account No. 102257301. However, for purposes of the following discussion, the Court has continued to treat the motions as a group. To this extent, the Court's rulings on the issues below constitute alternate grounds for denying the motions already disposed of.
C. The Lake States Subpoenas Are Not Invalid On the Ground That The RFPA Is Inapplicable To Lake States
In an attempt to turn the corporate status of Lake States to their own advantage, movants argue that because Lake States is a corporation, the CFTC's efforts to issue the two subpoenas pertaining to the Lake States accounts in compliance with the terms of the RFPA render the subpoenas invalid. This argument is without merit. The CFTC's authority to issue subpoenas rests not upon the RFPA but upon the CEA, 7 U.S.C. § 15. Cf. Commodity Futures Trading Commission v. Harker, 615 F. Supp. 420, 424 (D.D.C. 1985) ("the [Commodity Exchange] Act grants the Commission the authority to subpoena witnesses and to seek judicial enforcement of such subpoenas"). The RFPA merely imposes certain conditions upon enforcement of subpoenas when the subpoenas require the disclosure of bank records of persons or partnerships which fall within the RFPA's definition of "customers". Thus, the fact that the RFPA does not apply to the bank records of Lake States does not render the subpoenas a nullity; it merely means that the CFTC took procedural steps in issuing the subpoenas which it legally need not have taken. As set forth in the factual summary above, the CFTC asserts that it attempted to comply with the RFPA because the banks believed Lake States was a partnership (and thus a protected "customer" under the RFPA), and consequently would have resisted the subpoenas unless the CFTC complied with the procedural requirements of the RFPA. Rather than attempting compliance with the RFPA, the CFTC could have sought judicial enforcement of the subpoenas if and when the banks refused production of the requested records. See 7 U.S.C. § 15. But the fact that the CFTC chose to give movants the notice required by the RFPA is ultimately immaterial. Movants have cited no prejudice to them which resulted from this tactical decision, nor can the Court discern any. If anything, by virtue of the CFTC's decision to treat the movants as "customers" under the RFPA, movants have enjoyed the benefit of procedural safeguards to which they are not constitutionally or statutorily entitled. Cf. Securities and Exchange Commission v. Jerry T. O'Brien, Inc., supra, 467 U.S. at 741-751, 104 S. Ct. at 2725-30 (other than as provided in RFPA, "target" of SEC investigation has no right to notice of subpoena issued to third party under constitution, statute, or judicial law concerning enforcement of subpoenas). Accordingly, the CFTC's provision of notice to movants in compliance with the terms of the RFPA does not require that the subpoenas be quashed.
D. The Motions To Quash Must Be Denied Because There Is A Demonstrable Reason To Believe That The CFTC Investigation Is Legitimate, That The Records Sought Are Relevant To That Investigation, And That The Requirements Of the RFPA Have Been Met
The RFPA narrowly constrains the range of decisions which the Court may make with regard to motions to quash. Section 3410(c) provides:
If the court finds that the applicant is not the customer to whom the financial records sought by the Government authority pertain, or that there is a demonstrable reason to believe that the law enforcement inquiry is legitimate and a reasonable belief that the records sought are relevant to that inquiry, it shall deny the motion or application, and, in the case of an administrative summons or court order other than a search warrant, order such process enforced. If the court finds that the applicant is the customer to whom the records sought by the Government authority pertain, and that there is not a demonstrable reason to believe that the law enforcement inquiry is legitimate and a reasonable belief that the records sought are relevant to that inquiry, or that there has not been substantial compliance with the provisions of this chapter, it shall order the process quashed . . . .
Pursuant to the foregoing terms, the decision which the Court must render is clear, for the record amply supports the conclusion that there is a demonstrable reason to believe that the CFTC's investigation of Lake States and Thomas and Edward Collins is legitimate, that the records requested by the subpoenas are relevant to the inquiry, and that the CFTC has complied with the requirements of the RFPA.
CFTC's authority to investigate possible violations of the CEA is unquestioned. See 7 U.S.C. §§ 12(a), 15. Here the stated purpose of the investigation is to ascertain whether there have been violations of 7 U.S.C. §§ 6b and 6d(1) and 17 C.F.R. § 1.31, or any other provisions of the CEA or the CFTC's regulations. The information submitted by the CFTC supplies a demonstrable reason to believe that such an inquiry is legitimate.
The affidavits of Janulius and Cannon adequately document the Division's receipt of information that Collins and/or Lake States may have engaged in the trading of commodity futures on behalf of third parties without proper registration and may also have issued a false trading account statement to a third party. These same affidavits suggest that the follow-up investigation which the Division has performed has yielded information which is generally consistent with this tip. For example, the Division has (1) confirmed that Lake States was incorporated to engage in the trading of commodity futures; (2) received confirmation from an acquaintance of Collins that he had provided funds to Lake States to invest on his behalf in commodities futures; (3) documented a large cash flow into and out of Collins' personal trading account with Geldermann; (4) documented a connection between Collins' personal trading account with Geldemann and the two Lake States accounts at ANB and Palatine Bank; (5) documented a similar connection between Collins' trading account and the two accounts held in the name of Thomas W. and Barbara Collins at ANB and Heritage Bank; and (6) obtained a statement from Heinold Commodities which purports to reflect a substantial trade by Lake States.
Movants apparently concede that the four subpoenas now in issue also satisfy the relevancy prong of the RFPA. As the Fifth Circuit explained in Sandsend :
For purposes of an administrative subpoena, the notion of relevancy is a broad one. Equal Employment Opportunity Commission v. Elrod, 674 F.2d 601, 613 (7th Cir. 1982). An agency "can investigate merely on the suspicion that the law is being violated, or even just because it wants assurance that it is not." Morton Salt, 338 U.S. at 642, 70 S. Ct. at 363, 94 L. Ed. 2d at 410. So long as the material "'touches a matter under investigation,'" an administrative subpoena will survive a challenge that the material is not relevant. Elrod, 674 F.2d at 613 (quoting Motorola v. McLain, 484 F.2d 1339, 1345 (7th Cir. 1973), cert. denied, 416 U.S. 936, 94 S. Ct. 1935, 40 L. Ed. 2d 287 (1974).
878 F.2d at 882. The financial records subpoenaed by the CFTC do touch upon the matters which the Division is investigating. Each of the bank accounts for which information has been subpoenaed has a demonstrated connection through withdrawals and deposits to Collins' trading account with Geldermann. Granted, two of these accounts appear to be the personal accounts of Thomas and Barbara Collins. However, in view of the fact that funds deposited to and withdrawn from these bank accounts were commingled in the Collins trading account at Geldermann with funds deposited to and withdrawn from the Lake States accounts, even the ostensibly personal accounts are the legitimate subject of scrutiny. Cf. Weinberg v. Commodity Futures Trading Commission, 699 F. Supp. 808, 814-15 (C.D.Cal. 1988) (commingling of funds from business and personal accounts subjected both types of accounts to scrutiny), aff'd without published opinion, 884 F.2d 1396 (9th Cir. 1989). The records pertaining to all of these accounts may enable the CFTC to map the flow of funds into and out of the Collins trading account and thereby shed further light upon whether Collins, Edward Collins, and/or Lake States are improperly trading commodity futures on behalf of third parties. Cf. Sandsend, 878 F.2d at 882 (records concerning bank account of non-target party were relevant as a means to trace possibly illicit transactions).
Finally, to the extent that the RFPA applies to the subpoenas (see Section B, supra), there is no dispute that the CFTC has complied with its requirements in all respects. As stated previously, the CFTC provided notice of the subpoenas which complied with the requirements of § 3405 to each individual associated with the four bank accounts for which records were subpoenaed.
Although movants contest neither the CFTC's authority to conduct the investigation of Collins and Lake States nor the relevance of the subpoenaed bank records, and cite no defect in the CFTC's attempts to comply with the RFPA, movants nonetheless argue that the subpoenas should be quashed because they seek records identical to those already subpoenaed directly from Lake States (see Collins Aff. para. 15), and because "there are lesser [sic] intrusive alternatives to this request such as requesting that Movant[s] produce commodity related checks." These arguments are evidently grounded in the burden which a government agency normally bears when it seeks judicial enforcement of its subpoena. In that setting:
The agency must show that the investigation is being conducted pursuant to a legitimate purpose, that the information sought is relevant to that purpose, that the agency does not already have the information, and that the administrative prerequisites have been exhausted.
Commodity Futures Trading Commission v. Harker,
supra, 615 F. Supp. at 424, citing United States v. Powell, 379 U.S. 48, 57-58, 85 S. Ct. 248, 254-55, 13 L. Ed. 2d 112 (1964). Although these requirements are similar in certain respects to those set forth in § 3410(c), the Powell requirements differ to the extent they permit the district court to consider, as movants would have this Court do, whether the agency already has the information requested in the subpoena, or whether there are other alternatives which might yield that information. Such considerations are not appropriate here. Movants, after all, are not the respondents to the subpoenas in question, and therefore they cannot resort to the principles which govern subpoena enforcement proceedings generally to oppose the subpoenas; their sole judicial remedy lies in the RFPA. Cf. Jungles v. United States, 634 F. Supp. 585, 586 (N.D. Ill. 1986) (Powell requirements applicable only in proceedings to enforce subpoenas, not proceedings on motions to quash); O'Neal v. United States, 601 F. Supp. 874, 877 n. 1 (N.D.Ind. 1985) (same). And within the framework of the RFPA, only three questions are relevant: (1) Is there a legitimate law enforcement inquiry; (2) are the subpoenaed bank records relevant to the inquiry; and (3) has the government agency complied with the requirements of the RFPA? Sandsend, 878 F.2d at 882. All of these questions have been answered in the affirmative here. The Court is therefore required under the RFPA to deny the motions to quash.
Even if it were appropriate for the Court to consider the breadth of the subpoenas and determine whether the CFTC already has the information sought or could obtain it by less burdensome means, movants have not sufficiently articulated a basis upon which to quash or limit the subpoenas. Movants have come forward with nothing to demonstrate that the information and materials demanded in the subpoenas are in fact cumulative of that which the Division has already obtained from Lake States. Cf. Panaro v. United States Securities and Exchange Commission, (E.D.N.Y. August 5, 1987) ("The customer's statement must provide a ' factual basis for the conclusion that there is no reason to believe the financial records which are being sought contain information relevant to a legitimate law enforcement purpose.'") (emphasis supplied), quoting Hancock v. Marshall, supra, 86 F.R.D. at 211. Similarly, although movants contend that the information which the Division seeks could be obtained through other means, the only concrete alternative they suggest is for them to produce "commodity related checks." (Collins Aff. para. 17.) Notably, to the extent the subpoenas request information regarding checks, they identify particular check numbers and thereby limit the intrusive aspect of the subpoenas. At the same time, however, the subpoenas request more from the banks than just checks, and movants suggest no alternative means by such additional information could be obtained. In view of the narrow grounds identified in the RFPA as a basis for quashing a subpoena for bank records, the Court finds movants' conclusory arguments as to the potentially cumulative and expansive reach of the subpoenas to be insufficient to prevent their enforcement.
E. Movants Have No Constitutional Right To Privacy Vis A Vis The Bank Records
Movants argue that the production and disclosure of the subpoenaed documents would violate their constitutional right to privacy. (See Collins Aff. para. 11.) That argument is without merit in light of the Supreme Court's decision in United States v. Miller, supra, 425 U.S. at 440-43, 96 S. Ct. at 1622-25. (See Section B, supra.) In that case the Court rejected the argument that a bank customer had a legitimate expectation of privacy with respect to bank records which was cognizable under the Fourth Amendment:
The depositor takes the risk, in revealing his affairs to another, that the information will be conveyed by that person to the Government. This Court has held repeatedly that the Fourth Amendment does not prohibit the obtaining of information revealed to a third party and conveyed by him to Government authorities, even if the information is revealed on the assumption that it will be used only for a limited purpose and the confidence placed in the third party will not be betrayed.
425 U.S. at 443, 96 S. Ct. at 1624 (citations omitted). Pursuant to the Court's holding in Miller, the banks' compliance with the CFTC subpoenas will not infringe upon any constitutional right to privacy enjoyed by the movants.
F. Production Of the Subpoenaed Materials Will Not Violate Movants' Fifth Amendment Right Against Self-Incrimination
Movants next argue that their Fifth Amendment right against self-incrimination will be violated if the banks comply with the subpoenas and produce their bank records. Like movants' privacy argument, this contention holds no merit. The subpoenas in question have been served not upon movants, but upon their banks. Accordingly, there is no risk of self-incrimination implicated by the subpoenas. As the Supreme Court explained in Securities and Exchange Commission v. Jerry T. O'Brien, Inc., supra :
It is also settled that a person inculpated by materials sought by a subpoena issued to a third party cannot seek shelter in the Self-Incrimination Clause of the Fifth Amendment. The rationale of this doctrine is that the Constitution proscribes only compelled self-incrimination, and, whatever may be the pressures exerted upon the person to whom a subpoena is directed, the subpoena surely does not "compel" anyone else to be a witness against himself.