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SEC v. KINGSLEY

February 25, 1981

SECURITIES AND EXCHANGE COMMISSION
v.
William C. KINGSLEY, Island Hills Properties, Hilltop Properties, Waterlot Properties, T. A. B. Production Company, a/k/a T. A. B. Company, Island Planning Municipals, Inc., Island Planning Corporation of America, I. P. A. Planning Inc., Preferred Incomes, Inc., Edward A. Wagner, Murray Glantz



The opinion of the court was delivered by: PENN

MEMORANDUM

This comes before the Court on Application for Order to Show Cause and Order Requiring Obedience to Subpoenas Duces Tecum filed by the Securities and Exchange Commission (SEC). Jurisdiction to hear the matter is conferred upon the court pursuant to Section 22(b) of the Securities Act of 1933, 15 U.S.C. § 77v(b), and Section 21(c) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u(c).

 I

 The SEC issued a formal order of investigation directing a private investigation, In the Matter of William C. Kingsley, C. B. Planning Services Corporation. The order directed that an investigation be conducted to determine, among other things, whether Kingsley and others had violated or were about to violate the antifraud provisions of the Securities Act and Exchange Act and the broker-dealer registration provisions of the Exchange Act in connection with the offer and sale of interest in certain limited partnerships. Acting pursuant to the order, an officer of the SEC issued subpoenas duces tecum in order to take testimony and receive documents the SEC feels are related to and necessary for the completion of the investigation. The respondents have raised a number of objections to the subpoenas and the questions posed by the SEC and the request for documents. When those objections could not be resolved by the parties, the SEC applied to this court for enforcement.

 The several issues presented are as follows: (1) Whether the information sought from respondents Edward Wagner and Murray Glantz is relevant and material, (2) whether the limited partnerships are entitled to a Fifth Amendment privilege against self-incrimination, (3) whether Kingsley can use the Fifth Amendment privilege to defeat production of limited partnership or corporate documents in his custody and control, (4) whether Kingsley has a valid Fourth Amendment objection to the production of subpoenaed limited partnership and corporate documents in his custody and control, and (5) whether Wagner and Glantz have properly asserted, pursuant to the direction of their client or former clients, the attorney-client privilege.

  II

 The Court has given careful consideration to the arguments made in this matter and concludes that the requested order should issue.

 Wagner and Glantz refused to answer a number of questions on the grounds that those questions fall outside the scope of the order. The Court concludes that their objections are without merit. The investigation is for a lawful purpose. "The evidence sought ... (is) not plainly incompetent or irrelevant to any lawful purpose", Endicott Johnson Corp. v. Perkins, 317 U.S. 501, 509, 63 S. Ct. 339, 343, 87 L. Ed. 424 (1943), and absent such a showing by the respondent, the subpoenas should be enforced. See Securities and Exchange Commission v. Arthur Young & Co., 190 U.S.App.D.C. 37, 48, 584 F.2d 1018, 1029 (1978), cert. den. 439 U.S. 1071, 99 S. Ct. 841, 59 L. Ed. 2d 37 (1979). Respondents have failed to establish that the requested information is "plainly incompetent or irrelevant".

 The respondents limited partnership seeks to assert a Fifth Amendment privilege against self-incrimination to prevent the production of subpoenaed limited partnership documents. This contention must also fail. The privilege is personal and while it would protect an individual, or a sole proprietorship, it does not protect a collective entity or papers held by an individual in his representative capacity for a collective entity. Bellis v. United States, 417 U.S. 85, 94 S. Ct. 2179, 40 L. Ed. 2d 678 (1974). See also Fisher v. United States, 425 U.S. 391, 96 S. Ct. 1569, 48 L. Ed. 2d 39 (1976). The SEC also seeks partnership and corporate papers in the possession of Kingsley, and thus his objection to production of those papers on Fifth Amendment grounds must also be denied.

 In addition to asserting a Fifth Amendment privilege, Kingsley also poses a Fourth Amendment objection to the production of limited partnership and corporate documents in his control and custody. The Fourth Amendment requires that "the subpoena be sufficiently limited in scope, relevant to the purpose, and specifically directed so that compliance will not be unreasonably burdensome". See v. City of Seattle, 387 U.S. 541, 544, 87 S. Ct. 1737, 1739, 18 L. Ed. 2d 943 (1967). See also Securities and Exchange Commission v. Arthur Young & Co., supra, U.S.App.D.C. at 42-43, 585 F.2d at 1023-1024. The subpoenas here meet the above criteria and are not overly broad. This contention therefore is without merit.

 Finally, Wagner and Glantz have asserted an attorney-client privilege with respect to request for testimony and the production of documents. When such a privilege is asserted on behalf of the client or former client, the burden falls on the person asserting the privilege. He must establish that:

 
(1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom a communication was made (a) is a member of the bar of a court, or his subordinate and (b) in connection with the communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing either (i) an opinion of law or (ii) legal services of (iii) legal assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort, and (4) the privilege has been (a) claimed and (b) not waived by the client.

 United States v. United Shoe Mach. Corp., 89 F. Supp. 357, 358 (D.Mass.1950). See also In Re Ampicillin Antitrust Litigation, 81 F.R.D. 377, 25 F.R.Serv.2d 1248, 1252-65 (D.D.C.1978).

 Up to this point respondents Wagner and Glantz have not met their burden. SEC is entitled to pursue examination directed to the issue as to whether Wagner and Glantz are entitled to assert the privilege, and with respect to those areas where the respondents fail in their burden, to require answers to questions and production of documents. The order proffered by SEC preserves that right and requires that Wagner and Glantz answer questions but provides that "nothing herein shall prohibit (Wagner and Glantz) from refusing to answer questions by asserting and establishing a legally recognized privilege". This is equally applicable to Wagner's "conclusions, impressions or the operation of his mind". It may be, however, that respondent in stating his conclusions or impressions would necessarily draw upon information otherwise properly subject to the attorney-client privilege and that by answering that ...


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