The SEC is understandably loath to file subpoena enforcement actions. Such actions are basically a waste of time and resources--the SEC has subpoena power and the people to whom it issues subpoenas for documents or testimony are required by law to respond. Every minute the SEC has to spend getting a court to order people to do what they are already required to do (i.e., respond) is a waste of the agency's time and energy.
Sometimes, however, the SEC has no choice but to wield the "stick" of subpoena enforcement when people simply won't comply. Last week, the SEC announced that it had filed an action against Carlos R. Garza for his failure to provide testimony in its investigation of a company called Gaw Miners, LLC. The SEC stated that Garza was a salesman for GAW Miners who the SEC believed was knowledgeable about "GAW Miners' potential misrepresentations to individuals who purchased shares in GAW Miners' alleged mining operations, and rights in its new virtual currency."
The SEC served Garza with a subpoena requiring his testimony in July 2015. After several extensions, Garza appeared at the Commission's offices on August 12, 2015. The SEC began to ask him questions -- and the trouble began. According to the SEC,
Garza had two options: (1) testify, or (2) invoke a valid privilege not to do so. He did neither. Garza refused to provide any substantive testimony and further refused to assert any valid privilege. He claimed that because he did not understand the securities laws, he felt scared and intimidated and therefore would not answer any questions.
Garza's refusal to answer questions extended even to background questions such as his full name or age, the SEC alleged. He also asked the SEC to appoint counsel for him because he claimed to be unable to afford his own attorney -- something the SEC does not and cannot do. In its subpoena enforcement action, the SEC noted that "Garza has no right to have appointed counsel in an administrative investigation. The Commission has no funds to provide such counsel."
The SEC stated last week that on August 17, 2015, the court signed off on its subpoena enforcement request and ordered Garza to comply. Given the court's order, any further refusal to comply by Garza may now lead to his arrest -- one of the very few ways that people involved in SEC civil investigations can actually wind up arrested or in jail. As David Smyth put it last year when addressing this subject,
You know how Jalen Rose and Bill Simmons warn each other in their podcasts not to get fired when they get too close to politically sensitive subjects? If you get a subpoena from the SEC, be smart, consult with competent counsel, and don’t get arrested.