United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

IN RE: 

CHARLES SCHWAB CORPORATION

SECURITIES LITIGATION.

This Document Relates

To All Cases. /

No. C 08-01510 WHA

NOTICE FOR ORAL ARGUMENT

Appended hereto is a possible jury introduction on how to evaluate the role of counsel in

the preparation of the registration statements. Please come to the hearing with your own critique

and counter proposals. This is not a ruling, for the Court has not made up its mind. This is only a

way to focus discussion on how this problem would be explained to the jury. 

Also, defense counsel should be prepared to answer: 

1. Which defendants will testify that they actually believed in the

accuracy of the registration statements based at least in part on the involvement of

counsel; 

2. Which defendants actually had communication with counsel

concerning the registration statement; and 

3. Does the record contain an offer of proof?

Dated: February 9, 2010. WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

Case 3:08-cv-01733-WHA Document 40 Filed 02/09/10 Page 1 of 3
United States District Court

For the Northern District of California

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JURY INSTRUCTION

(For Discussion Only)

Section 11 allows defendants to avoid liability by proving that they “had, after reasonable

investigation, reasonable ground to believe and did believe that the registration statement was not

materially misleading.” This is an affirmative defense and the burden of proof rests on

defendants. The key inquiry focuses on each defendant’s belief at the time in question and

specifically whether he had reasonable belief in the accuracy of the registration statement. 

Defendants have placed before you evidence that lawyers were involved in the process

of preparing the registration statements. Defendants, however, have asserted and still assert the

attorney-client privilege as to what they told the lawyers, if anything, and what the lawyers told

them, if anything. There is nothing improper in defendants asserting the attorney-client privilege. 

 But I must instruct you concerning the effect of this evidence and the assertion of the privilege. 

Under Section 11, however, the burden is on defendants to prove that they “did believe”

in the accuracy of the registration statement. If lawyers were involved in the preparation and

filing process, you may not assume that the lawyers blessed the documents or that the lawyers

ever learned all of the facts necessary properly to vet the registration statements. Although that

sometimes occurs in such circumstances, it also sometimes occurs that lawyers advise caution or

suggest revisions or state that the registration statements are not as accurate as they should be,

in which case it is the client’s final decision whether to follow the advice or to run risks. 

In this case, due to the assertion of the privilege, we do not know the actual

communications between defendants and their lawyers, so it is impossible to know how those

communications affected or should have affected defendants’ beliefs as to the accuracy or

inaccuracy of the registration statement. If, for example, a defendant knew of facts and

circumstances that should have been revealed to counsel but failed to reveal them, then that

defendant should not have relied on lawyers being involved in the process. On the other hand,

that a defendant had no communications directly or indirectly with counsel yet was aware that

competent lawyers had been engaged for the preparation and filing process, may be considered by

Case 3:08-cv-01733-WHA Document 40 Filed 02/09/10 Page 2 of 3
United States District Court

For the Northern District of California

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you, along with all other facts and circumstances known to the defendant, in evaluating that

defendant’s good-faith belief. 

Case 3:08-cv-01733-WHA Document 40 Filed 02/09/10 Page 3 of 3