Securities and Exchange Commission v. Rayat

Background

The court considered competing requests for a Letter of Request to the Supreme Court of British Columbia seeking tax-return information for defendants Harmel S. Rayat, Jatinder Bhogal, and Jeetenderjit Singh Sidhu. The opinion states that the returns apparently were filed in Canada. The defendants sought information limited to certain transactions among the defendants. The Securities and Exchange Commission, which alleges violations of federal securities laws, argued that complete return information was necessary to contest the defendants’ arguments and prove its claims.

Legal issue

Both sides assumed that a two-part test discussed in a prior Southern District of New York decision applied to the requested information. Under that test, a party seeking tax returns in a civil case must show that the returns are relevant to the case and that there is a compelling need for them because the information is not readily available from a less intrusive source.

The court explained that the test is based at least partly on policies protecting U.S. federal and state tax systems and on federal law concerning the confidentiality of federal tax returns. The court stated that it was not obvious whether those same standards apply when the information comes from foreign tax returns and is sought in connection with alleged violations of U.S. law.

Order

The court did not rule on whether the foreign tax information was discoverable or whether the requested letter should issue. Instead, it ordered each side to submit a letter of no more than three single-spaced pages identifying authority on whether the two-part test protects the discoverability of foreign tax information. The order states that the submissions were due by 12:00 p.m. on February 3, 2022. Because the order is dated January 31, 2023, the stated year for the deadline appears inconsistent within the opinion; this summary does not resolve that inconsistency.