The opinion of the court was delivered by: Lamberth, District Judge.
This matter comes before the court upon a petition by the Board of
Governors of the Federal Reserve System (the "Board") for an order
requiring Interfinancial Services, Ltd. ("Interfinancial") to show cause
why it should not be required to comply with a subpoena duces tecum
issued by an Administrative Judge in connection with a pending Board
enforcement proceeding. Additionally, the Board requests an order
compelling Interfinancial to produce all documents named in the subpoena
within seven days of the Order's issuance. For the following reasons, the
Board's petition shall be granted and the subpoena shall be enforced.
Laredo National Bancshares ("LNB") is a registered bank holding company
under the Bank Holding Company Act ("BHC Act"), 12 U.S.C. § 1841 et
seq. In July 1991, Carlos Hank Rhon purchased a controlling interest in
LNB. Under the Change in Bank Control Act, 12 U.S.C. § 1817, Rhon
filed a Notice of Change in Bank Control, which the Board ultimately
approved in December 1991 after securing various commitments from Rhon.
One of these commitments required Rhon to seek Board approval prior to
assuming control over more than 25% of LNB's stock.
In October 1993, Incus Co. Ltd. ("Incus"), a bank holding company
controlled by Rhon, sought to obtain a large block of LNB's outstanding
voting shares. On October 13, 1993, pursuant to Rhon's December 1991
commitment, Rhon and Incus filed another Notice of Change in Bank
Control. Relying on certain representations from Rhon, the Board approved
the Notice in January 1994.
On December 16, 1997, the Board issued a Notice of Charges alleging
that Rhon and Incus had reneged on prior commitments to the Board and
were guilty of violating the BHC Act, the Change in Bank Control Act, and
other federal laws. Under the Board's Rules of Practice,
12 C.F.R. § 263.26, the matter was assigned to Administrative Law
Judge Arthur L. Shipe. After Rhon and Incus requested a full hearing, the
Board's Enforcement Counsel ("EC") requested that Judge Shipe issue a
subpoena duces tecum to Interfinancial Services, Ltd.
("Interfinancial"), a subsidiary of a Mexican brokerage firm controlled
by Rhon and incorporated under the laws of the British Virgin Islands.
On October 6, 1999, Interfinancial moved to quash the subpoena duces
tecum, contending that the documents named in the subpoena were
irrelevant to the pending inquiry and that compliance with the subpoena
would violate Mexican financial privacy laws. Judge Shipe rejected these
arguments and denied the motion to quash on December 8, 1999.
Subsequently, counsel for Interfinancial agreed to produce the requested
documents. However, as of February 4, 2000, Interfinancial had yet to
fully comply with the subpoena.
The Board applied for an Order to Show Cause on February 9, 2000. On
March 8, 2000, this court issued the requested Order to Show Cause, and a
hearing was held on March 17, 2000. This court today grants the Board's
motion and requires respondent to fully comply with the subpoena duces
Respondent asserts that the subpoena duces tecum requires
Interfinancial to release sensitive account and transaction information
in violation of Mexican law. To support its position, respondent
submitted an opinion from a Mexican law firm citing the "Secrecy in the
Securities Market" principle codified in Article 25 of the Mexican
Securities Market Act: "Brokerage Houses cannot give information on the
transactions they undertake or those in which they participate, except
for information requested by the client . . . or his legal
This court finds that the Securities Secrecy principle does not
preclude the release of the subpoenaed documents. Article 8 of the Mexican
Securities Market Act states that "[t]he Ministry of Finance and Public
Credit shall be the competent organization to interpret the provisions of
this Law, and, through general rules, to provide everything with respect
to its application." Availing themselves of this discretion, on September
7, 1999 the Undersecretary of Finance and Public Credit of Mexico issued
the following ruling: "Mexican securities brokerage firms . . . should
carry out their operations subject to the foreign legislation applicable
to them . . . International Services, Ltd. is not subject to the legal
regime set forth in Article 25 of the Securities Market Law, nor are its
operations a subject matter of such law." See exhibits A-B to Enforcement
Counsel's Opposition to Motion to Quash, Attachment E. The Administrative
Judge determined that the ...