Securities and Exchange Commission v. Bivona

Background

Nonparty Patrick Nicholson moved to quash, meaning to set aside, a subpoena issued by the U.S. Securities and Exchange Commission for documents maintained by Nicholson at TD Bank. Nicholson argued that his personal financial records were not relevant to the SEC’s efforts to enforce judgments against judgment debtors in the case.

The opinion states that Defendant John Bivona and Defendant Frank Mazzola were jointly and severally liable for $4,155,000, and that Mazzola was separately ordered to pay a $200,000 civil penalty. The defendants were ordered to pay the disgorgement amounts within 30 days after final judgment. According to the opinion, Mazzola had made only one payment toward the judgment, and his personal accounts were funded in part by Nicholson.

Legal Standard

The Right to Financial Privacy Act provides the exclusive court procedure for a bank customer challenging disclosure of financial records from a financial institution. Under that law, a subpoena may be enforced when the requested records are relevant to a legitimate law-enforcement inquiry. The statute defines such an inquiry as a lawful investigation or official proceeding concerning a violation of, or failure to comply with, a criminal or civil statute, regulation, or rule.

The court stated that the SEC’s investigation into Mazzola’s failure to comply with the judgments arising from the securities-fraud case was a legitimate law-enforcement inquiry. It also explained that third-party bank records may be inspected when they could lead to the discovery of concealed assets belonging to judgment debtors. Information is relevant when it touches a matter under investigation.

Court’s Analysis

The court rejected Nicholson’s argument that relevance was defeated because he was only a friend and part owner of a company that employed Mazzola, rather than a judgment debtor himself. The SEC represented that Mazzola worked at a towing company partly owned by Nicholson; Nicholson wire-transferred Mazzola’s paycheck into Mazzola’s personal account; and Mazzola’s company reimbursed Nicholson’s towing company for similar amounts.

The court concluded that Nicholson appeared to be deeply involved in Mazzola’s financial matters and means. It held that the SEC was permitted to investigate those transactions through the subpoena for Nicholson’s bank records.

Disposition

The court denied Nicholson’s motion to quash the subpoena. It instructed the SEC to serve the order on Nicholson and file proof of service within three court days. The order disposed of Docket No. 695.