The opinion of the court was delivered by: CONNER
Plaintiff Securities and Exchange Commission ("SEC") filed this action seeking to enjoin defendants from various alleged violations of the federal securities laws in connection with the underwriting, public offering and sale of $6,000,000 worth of securities issued by defendant Cayman Islands Reinsurance Corporation, Ltd. ("Cayman Re"). The case is presently before the Court on the SEC's motion to compel the testimony of defendant Michael C. Scott ("Scott") over Scott's assertion of the fifth amendment privilege against self-incrimination.
The SEC contends that Scott, who with the exception of the instant motion has appeared in this action pro se, waived his privilege by making certain factual statements regarding the case in a petition he submitted to the Ontario Supreme Court ("the petition"). Scott filed the petition in opposition to an application by the SEC seeking permission to take Scott's deposition in Canada.
For the reasons set forth below, I conclude that Scott has not waived his fifth amendment privilege. Thus the SEC's motion must be denied.
The SEC alleges, inter alia, that Scott, who was the chief executive officer of Cayman Re, diverted a substantial portion of the proceeds of the Cayman Re offering via a loan to Marsta Cessions, a company allegedly organized by him.
On September 13, 1982, the SEC attempted to take Scott's deposition in Toronto, Ontario. At the beginning of the deposition, Scott was advised of his right to invoke the fifth amendment privilege against self-incrimination. Scott then sought to assert the protection of Canadian law, which provides that civil testimony cannot be used against the witness in a criminal prosecution except a prosecution for perjury. After the SEC indicated that it could not and would not seek immunization of Scott's testimony, he conferred with a Canadian lawyer by phone. Based on that conversation, Scott refused to testify in the absence of an order from a Canadian court compelling him to do so.
On September 29, 1982, this Court issued letters rogatory seeking the assistance of the Supreme Court of Ontario in compelling Scott's appearance for the deposition. The SEC then applied to the Supreme Court of Ontario for enforcement of the letters rogatory, noting the applicability of the fifth amendment privilege in that proceeding. In response to that application, however, Scott filed an unsworn petition in which he expressed concern that a compelled deposition would jeopardize his fifth amendment right to remain silent. Specifically, Scott argued that if the SEC's application were granted it "would effectively over-ride the protection available to a respondent under United States jurisdiction, where such respondent may elect to invoke the protection of the Fifth Amendment to the Constitution of the United States." SEC Exhibit D, para. 7. Scott further objected that other defendants in this action "have elected not to testify, invoking the Fifth Amendment. To preclude such to this respondent is to discriminate." Id., P 8. Finally, Scott complained that the SEC was utilizing the Canadian judicial process "to circumvent the applicability and availability to the respondent of the Fifth Amendment." Id., P 9.
However, Scott did not limit his petition to argument. He also made factual averments including: (1) that he had been "invited to become interested in [Cayman Re] prior to the 1980 underwriting." Id., P 13; (2) that thereafter he was invited to become chief executive officer thereof, Id., P 16; (3) that he had invested $82,500 in Cayman Re, Id., P 14; and (4) that he was subsequently dismissed from the company, Id., P 13. Exhibit A to the petition, inter alia, (1) states that he never employed the alias Michael Cole, SEC Exhibit D para. 1 of Exhibit A; (2) denies that there was any agreement to invest the proceeds of the offering "incestuously," Id., P 2 of Exhibit A; (3) acknowledges his prior criminal conviction, Id. P 3(a) and (f) of Exhibit A; (4) acknowledges the existence of Cayman Re's loan to Marsta Cessions, Id. P 3(b) and (c) of Exhibit A; and (5) states that he no longer has any resources, Id., P 7 of Exhibit A.
The Supreme Court of Ontario granted the SEC's application and ordered Scott to appear for the deposition provided that the examination would be conducted pursuant to United States discovery rules and provided that Scott could invoke the protections of the Canada and Ontario Evidence Acts. On November 1, 1982, Scott appeared for the deposition, invoked the fifth amendment and refused to testify. The SEC informed Scott that it considered his petition to be a waiver of his privilege against self-incrimination and adjourned the deposition to seek a ruling by this Court.
The issue thus presented is whether this Court should infer from Scott's unsworn petition to the Supreme Court of Ontario a testimonial waiver of his fifth amendment privilege against self-incrimination. As recently noted by the Second Circuit, a waiver may be inferred from a witness's prior testimony without inquiry into the witness's actual state of mind. See Klein v. Harris, 667 F.2d 274, 287 (2d Cir. 1981). Not surprisingly, however, courts are wary of inferring a waiver of such a fundamental right and "indulge every reasonable presumption" in favor of the party seeking to invoke the privilege. Klein, supra, 667 F.2d at 287. The court should presume a waiver only if:
(1) the witness's prior statements have created a significant likelihood that the finder of fact will be left with and prone to rely on a distorted view of the truth, and (2) the witness had reason to know that his prior statements would be interpreted as a waiver of the fifth amendment's privilege against self-incrimination.
Based on this standard, the SEC's motion to compel Scott's testimony must be denied. First, there is no "significant likelihood" that this Court, as the ultimate finder of fact in this case, will be misled by a one-sided ...