SEC Will Get E-Mails in Ponzi Scheme Investigation

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Dec. 14 — A company president who may have engaged in a Ponzi-type scheme can't assert Fourth Amendment or marital privilege protections to avoid handing over e-mails, the U.S. District Court for the District of Columbia held Dec. 9.

In November 2014, the U.S. Securities and Exchange Commission began investigating the activities of FX & Beyond Corp., including those of the company's president Steve H. Karroum, who the SEC believed may have engaged in a Ponzi-type scheme. The SEC issued a subpoena to Karroum for documents or data related to his investment and financial activities. Karroum eventually handed over documents, but did not produce any e-mails with investors.

The court ultimately ordered the parties to propose a production protocol. The court rejected Karroum's proposals and issued an order adopting the SEC's proposed protocol, which specified that Karroum must agree to allow his internet service provider to turn over his e-mails. Karroum objected.

Karroum argued the Fourth Amendment barred production of his e-mails stored by his ISP. The court was not swayed by this argument however, noting the SEC's original subpoena required Karroum himself—not the ISP—to turn over the e-mails, and the D.C. Circuit has held that administrative subpoenas constitutes reasonable searches.

Karroum also asserted the marital privilege, but that privilege does not protect e-mails sent through a defendant's work e-mail account.

“In any event, resolving the contours of the marital privilege is unnecessary here because the SEC's protocol includes a ‘privilege review team' of attorneys unrelated to the investigation who will ensure that ‘communications between Karroum and his wife…will be removed from the production…,” the court explained.

District Judge James E. Boasberg wrote the order.

Derek S. Benten of the SEC represented the SEC. Allred, Bacon, Halfhill and Young PC in Fairfax, Va., represented Karroum.

The full text of SEC v. Karroum is available at