Magistrate Judge James Francis
The SEC sued individual defendants Garber, Yellin and Feinstein and entities they controlled, specifically OGP Group LLC, Rio Sterling Holdings LLC and Slow Train Holdings LLC (entity defendants). The SEC sought the individual defendants’ federal tax returns. Defendants opposed, asserting the documents’ protection by the quasi-privilege accorded to tax returns. Applying the two-pronged test in Trilegiant Corp. v. Sitel Corp., the court granted the SEC production. The tax returns reflected the individual defendants’ income and thus were relevant to the issue of whether they—and the entity defendants—were accredited investors that could buy unregistered securities. The court further rejected defendants’ assertion that the first page of the tax returns—provided for in camera review—was a sufficient alternative to the returns’ production in their entirety. By raising the accredited investor defense, the defendants placed their income at issue. Because determining income, and evaluating whether defendants are accredited investors, cannot be accomplished by reference to a particular figure on the first page of the tax returns, it would be fundamentally unfair to foreclose the SEC from access to the balance of the returns.
