U.S. Securities and Exchange Commission v. Commonwealth Advisors, Inc. et al

Filing 69

RULING granting 57 Motion for In Camera Review. Signed by Magistrate Judge Stephen C. Riedlinger on 11/6/2014. (LLH)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

U.S. SECURITIES AND EXCHANGE
COMMISSION

CIVIL ACTION

VERSUS

NUMBER 12-700-JWD-SCR

COMMONWEALTH ADVISORS, INC.
AND WALTER A. MORALES
RULING ON MOTION FOR IN CAMERA REVIEW
Before the court is the Plaintiff’s Motion for In Camera
Review.

Record

document

number

57.

Defendants

filed

an

opposition.1
Plaintiff sought an in camera review of two documents which it
contends were improperly redacted to remove information coming
within the scope of the defendants advice-of-counsel defense which
created a waiver of their previously asserted attorney client
privilege.
The first document is three-page memorandum referred to as the
“CW Issues” memorandum, and the second is five-page memorandum
referred to as the “Morales Memo.”2

Un-redacted versions of these

documents were provided to the court when the defendants filed
their opposition memorandum.

1

2

This ruling does not include any

Record document number 61.

The redacted version of CW Issues is Bates numbered MLB008 MLB010. The redacted version of Morales Memo is Bates numbered
MLB019 - MLB023. The pages of the documents are not separately
numbered.

information which would reveal the specific facts disclosed to
Morgan Lewis attorney Ivan Harris nor any advice provided by the
attorney.
CW Issues
The communication upon which this document is based occurred
in August 2008.

While not specifically stated in the redacted

version of the document, the parties generally agree that the
source of the factual information in the document was defendant
Walter Morales and/or Commonwealth Advisors, Inc.
Review

of

the

un-redacted

version

supports

finding

that

section I (on redacted page MLB008) does not fall within any of the
three advice-of-counsel defense waiver areas as they are described
in the defendants’ opposition memorandum.

However, from the

beginning of section II (redacted page MLB008) through the fifth
bullet point paragraph on the second page of the document (redacted
page MLB009), the document consists of factual information under
the headings “Collybus Trading” and “Initial Collybus Deal and
Subsequent Activity.”

This part of the document describes the

formation of the Collybus CDO, the collateral manager’s role, and
the cross trades.

This information falls within the first and

third advice-of-counsel defense waiver areas.

This conclusion is

further supported by finding that, on the third page under the
heading “Issues” (redacted page MLB010), numbered paragraphs 2 and
4 fall within the third advice-of-counsel defense waiver area. The

2

issues stated in paragraphs 2 and 4 are in the present tense, i.e.,
what should be done at that time, i.e., August 2008.

The issues

are not described as being an assessment of the appropriateness or
legality what was already done by Commonwealth nor how to respond
to the SEC’s investigation.
Morales Memo
The redacted version the Morales Memo removed all but the
header information (subject/to/from) and one sentence on the fifth
page. The subject of the Morales Memo accurately states that it is
the

“SEC

and

other

legal/regulator

issues

for

Commonwealth

Advisors.”3 Defendant Morales provided information to Morgan Lewis
attorney Ivan Harris regarding the Collybus CDO and Commonwealth’s
activities regarding the Collybus CDO from late 2007.

Most of the

information appears to be factual but some of it consists of his
assessments of various actions Commonwealth took or failed to take.
It is difficult to determine from examining just this document
how much of it comes within any of the three advice-of-counsel
defense waiver areas.

However, the document overall supports

finding that the numbered section 1) through paragraph d) on the
first page (redacted page MLB019) covers the same subject matter as
all three advice-of-counsel defense waiver areas.
present

tense

verbs

which

indicate

ongoing

or

Morales used
anticipated

Commonwealth activities related to what it should do to satisfy a

3

Record document number 57-5 (emphasis added).
3

client’s wishes; only paragraph e) appears to be related to
responding to the SEC investigation.

In the Summary section

(redacted pages MLB022 - MLB023), paragraphs 8, 10, 13 and 14 (all
on redacted page MLB023) come within the third advice-of-counsel
defense

waiver

Commonwealth

areas.4

needs

to

Paragraphs
do

vis-a-vis

13

and

its

14

clients

discuss
and

what

Cantor

Fitzgerald regarding a certain trade; neither paragraph indicates
that the information was provided for the purpose of obtaining
legal advice regarding the SEC investigation.
This assessment of these two documents was made so as to give
the defendants’ advice-of-counsel defense waiver a narrower rather
than a wider application, to err on side of preserving the attorney
client privilege as to these two documents.

But the review these

two document indicates that the defendants are assessing the
advice-of-counsel defense waiver areas even more narrowly, thereby
widening the scope of the remainder of the privilege, and resulting
in excluding from production information and communications to/from
the Morgan Lewis law firm on the same subject matters as the three
waiver areas. This creates concern because it means the defendants
removed discoverable information from redacted documents produced
after the defendants asserted their advice-of-counsel defense.
Accordingly, the Plaintiff’s Motion for In Camera Review is

4

Paragraph 9 was included in the redacted versions produced
to the plaintiff.
4

granted to the following extent.

Defendants shall produce to the

plaintiff, within 24 hours, a revised redacted version of:
(1)

the CW Issues memorandum, disclosing (in addition to the
parts previously disclosed) from the beginning of section
II (redacted page MLB008) through the fifth bullet point
paragraph on the second page of the document (redacted
page MLB009), and numbered paragraphs 2 and 4 on the
third page under the heading “Issues” (redacted page
MLB010); and,

(2)

the Morales Memo disclosing (in addition to the parts
previously disclosed) the numbered section 1) through
paragraph d) on the first page (redacted page MLB019),
and

paragraphs 8, 10, 13 and 14 (all on redacted page

MLB023) of the Summary section.
Baton Rouge, Louisiana, November 6, 2014.

STEPHEN C. RIEDLINGER
UNITED STATES MAGISTRATE JUDGE

5