The opinion of the court was delivered by: Denise Cote, District Judge
Invoking Rule 4.2(a) of the American Bar Association's Model Rules of Professional Conduct, defendant Brian N. Lines ("Lines") has moved for a protective order to avoid producing a tape recording of his conversation with the Securities and Exchange Commission ("SEC") during its investigation of stock manipulation. For the following reasons, Lines's motion is denied.
The SEC alleges that defendants in this case engaged in two separate but related fraudulent schemes to manipulate the stock prices of publicly-traded shell companies, Sedona Software Solutions, Inc. ("Sedona") and SHEP Technologies, Inc. Both alleged schemes took place between 2002 and mid-2003. Among the defendants alleged to have participated in these schemes are LOM (Holdings) Ltd., and its subsidiaries Lines Overseas Management Ltd., LOM Capital Ltd. ("LOM Capital"), LOM Securities (Bermuda) Ltd., LOM Securities (Cayman) Ltd., and LOM Securities (Bahamas) Ltd. (collectively, "LOM"). Lines was the President of LOM Holdings and each of its defendant subsidiaries. LOM Capital was the investment bank for the Sedona transaction.
On January 21, 2003, the SEC began investigating trading related to Sedona securities. The price of the securities on that day was at "price levels thousands of times the previous price of Sedona stock." On January 23, the SEC called an LOM office and was put in contact with Scott Lines, who was then the Managing Director of LOM Holdings and each of its defendant subsidiaries. The SEC advised Scott Lines of the voluntary nature of the call and began asking questions about matters related to Sedona. When Scott Lines announced that "we do not engage in voluntary exchange of information with the SEC," the SEC asked to be put in touch with the company's in-house counsel for further explanation of that policy. LOM's in-house counsel, David Surmon ("Surmon"), explained that all investigative inquiries should be made in writing pursuant to company policy and that either he or the appropriate person within LOM would respond. The SEC alleges, and Lines does not dispute, that Surmon did not make any clear statements that he was representing anyone in this investigation. The SEC did not submit any written questions to Surmon or to anyone else at LOM. On January 29, the SEC suspended trading in Sedona securities.
On February 3, Jack Cooper ("Cooper"), the individual who sold the Sedona shell corporation to Brian and Scott Lines,*fn1 urged Lines to call the SEC because "the quicker they can find out with certainty [who purchased the stock], probably the quicker we're going to get up trading and everyone get on with their lives." Cooper gave Lines the name and number of an SEC attorney.
About two hours later, Lines called the SEC and introduced himself as the president of LOM. The following is an excerpt of the transcript of the beginning of the call:*fn2
Lines: I was speaking with [Cooper] basically and he said that we would be uncooperative, which was definitely not our agenda basically.
SEC Attorney Ungar: What he [Scott Lines] basically told us, he transferred us to the general counsel.
SEC Attorney Weissman: He transferred me to Mr. Surmon.
Lines: Well he is our in-house legal counsel, right.
SEC Attorney Weissman: And Mr. Surmon said that everything had to go through the uh, the Bermuda Monetary Exchange and had to be pursuant to a strict process and that you weren't . . .
Lines: Yeah I think basically when you, but uh, I think the idea is that we want to be cooperative, basically, so that is not uh, [he is, it's neither here nor there??] so to speak.*fn3
SEC Attorney Ungar: Well as long as you want to be cooperative, I mean that's what we want.
Lines: I am trying to figure out what the issue is here and obviously the issue seems to be more Tony's uncle basically, ...