Opinion ID: 1887226
Heading Depth: 1
Heading Rank: 5

Heading: May 1991 Letter

Text: The Court of Chancery found that in May 1991, the Fried Frank attorneys representing Scharf took the unusual step of requesting that the SEC Staff provide written confirmation of the Staff's position with respect to Scharf. The Court of Chancery found that the SEC's letter was not unqualified. Nevertheless, the Court of Chancery noted that the contemporaneous handwritten notes of one of Scharf's attorneys stated, Yes, you're out. Scharf submits that subsequent undisputed facts in the record contradict the optimistic statement in his attorney's handwritten notes. In a memorandum written by the same attorney two months after writing the you're out note, she expressed Fried Frank's concerns that even though the SEC Staff said it had concluded not to recommend action against Scharf, it was sending subpoenas to persons who worked in the offices of Scharf and Greenberg, asking for documents and testimony about both of them and had apparently referred th [e] matter for criminal investigation. According to Scharf's attorney, it was difficult to understand how the SEC Staff can conclude, on one hand, that there is insufficient information to establish civil charges, and can determine, on the other hand, to refer the matter for criminal investigation. Scharf's argument is supported by the Court of Chancery's findings regarding Fried Frank's meetings with the SEC Staff post-dating the May 1991 letter and handwritten you're out note. The SEC expressed doubts about Scharf's veracity and issued subpoenas to individuals who worked in the offices shared by Scharf and Greenberg [which] sought documents about both Scharf and Greenberg. The Court of Chancery also found that the SEC staff considered Scharf culpable and would have welcomed the receipt of evidence supporting its view. [26] Although Edgcomb contends that the SEC's May 1991 letter provided Scharf with certainty that no claims would be asserted against him, the letter is qualified by the statement that the SEC Staff had decided  at this time  not to recommend an enforcement action against Scharf, based upon information then in the SEC Staff's possession. The letter also stated that the Staff was continuing its investigation. The Court of Chancery concluded that the SEC's continuing investigation of Greenberg afforded it the opportunity to develop new evidence related to Scharf. Consequently, the Court of Chancery found that [i]t is understandable that Scharf and his attorneys experienced concerns about his status despite the May letter. [27] Having found that the concern of Scharf's attorneys about his status were understandable, the record reflects that Scharf could not have been confident the allegations against him had been resolved with certainty by the May 1991 letter. Therefore, the record does not support the Court of Chancery's legal conclusion that Scharf could have been confident that the SEC's potential claims against him had been resolved with certainty upon his attorney's receipt of the May 1991 letter.