Opinion ID: 1887226
Heading Depth: 1
Heading Rank: 6

Heading: 1992 SEC Complaint

Text: The Court of Chancery undoubtedly recognized that, if Scharf really could be confident that all of the SEC's concerns about him were resolved with certainty after the 1991 May letter, it followed logically that Greenberg could be confident that the SEC's concerns about Greenberg with Bally had also been resolved with certainty. It is undisputed, however, that the 1992 SEC Complaint charged Greenberg with regard to Bally. Therefore, instead of relying exclusively on its holding that the statute of limitations began to run with the May 1991 letter, the Court of Chancery also decided that issue on an independent basis. The Court of Chancery's alternative holding was that: [i]n June 1992, shortly after the filing of the SEC's complaint [against Greenberg] and Scharf's opportunity to assess it, Scharf was no longer at risk and the reasonable person in his position both would have and could have concluded with both certainty and confidence that the SEC's investigation of him had been definitely resolved. [28] Scharf argues that on the contrary, his attorneys continued to have what Edgcomb's expert characterized as reasonable doubts regarding whether claims would be asserted against Scharf by the SEC. The record supports Scharf's position and reflects why the filing of the June 1992 SEC Complaint did not provide either Scharf or his attorneys with confidence that the potential SEC claims against Scharf had been resolved with certainty. Scharf, Edgcomb and the securities of other companies in which Scharf had also traded were all featured prominently in the SEC's Complaint. The SEC Complaint continued to advance a quid pro quo theory against a group of alleged insider traders. According to the SEC Complaint, Scharf informed Greenberg of his intention to sell Edgcomb, who in turn tipped Downe. Greenberg and Downe traded in Kidde, in which Scharf also traded. Scharf and Greenberg had plans with respect to Bally, about which Greenberg allegedly tipped Downe. Given the SEC's interrelated, quid pro quo allegations  which were contrary to Scharf's sworn testimony  Scharf's attorneys concluded that he remained at risk so long as Greenberg and the other defendants tied to tipping or trading in Edgcomb were in a position to implicate him in wrongdoing. The record reflects that the SEC was pursuing discovery after filing its Complaint. The Court of Chancery also found that [n]ew information from Greenberg or Downe, one of Greenberg's co-defendants who was listed in an SEC discovery response as a person having knowledge of Scharf's role, might have been obtained. [29] Edgcomb acknowledges that the SEC could amend its Complaint to allege new facts and add new defendants. The concern that the SEC's interest in Scharf had not been resolved with certainty was increased when, at about the time of the June 1992 SEC Complaint, the USAO began a companion criminal investigation. In that companion criminal litigation, the Court of Chancery found that the USAO had offered qualified immunity for Scharf. When that offer of immunity was subsequently withdrawn, it was perceived by Scharf's attorneys as an ominous sign for Scharf. Scharf's deposition was noticed by the SEC for December 1992. Due to a stay of discovery obtained by the USAO, that notice remained outstanding until 1994. When the stay of discovery was lifted in mid-1993, the SEC sought documents concerning Edgcomb and securities of other companies in which Scharf had traded, including Kidde. In November 1993, the SEC indicated that it intended to file a motion to compel further discovery from Greenberg. The SEC also sought deposition testimony from certain individuals, including other defendants and relatives of Downe. At the time Greenberg settled in July 1994, discovery by the SEC was ongoing. Scharf's attorneys testified that they continued to represent Scharf through the time Mr. Greenberg settled the matter. One of Scharf's lawyers stated that he personally met or spoke with Scharf approximately thirty-five times between June 1992 and the time of the SEC's settlement with Greenberg in 1994. The evidence presented at trial reflects that three of Scharf's lawyers from Fried Frank, who the Court of Chancery found were highly experienced in SEC enforcement matters and who testified truthfully, were of the opinion that Scharf remained at risk of being added as a named defendant in the SEC proceedings until Greenberg settled. As one of Scharf's lawyers testified at trial: It was plain from what the SEC alleged and from what the U.S. Attorney was doing and from the course [the] investigation had taken for quite a long time that it was prudent to consider that Mr. Scharf was still under jeopardy.... [H]e thought he was still under threat, and we were certainly unable to tell him, based on what we knew, that there wasn't a rational basis for thinking so. [30] Edgcomb's expert witness testified that Scharf's lawyers are widely recognized as experts in SEC enforcement matters and he did not consider the views of Scharf's attorneys as unreasonable. [31] Thus, the record reflects that the reasonable minds of recognized legal experts could disagree about whether Scharf was still under threat until Greenberg settled with the SEC in 1994. Therefore, the record does not support the Court of Chancery's legal conclusion that Scharf could be confident that the SEC's potential claims against him had been resolved with certainty when the 1992 SEC Complaint was filed.