George L. Smith pled guilty yesterday to one count of obstructing an SEC insider trading investigation. Mr. Smith is a former director and founding member of the Chicago Board of Options Exchange, director of the American Stock Exchange, chairman and founding member of the AMEX Commodities Exchange and managing director of New York City broker dealer Broadband Capital Management LLC.

Mr. Smith’s plea is based on allegations that during an SEC investigation into whether he engaged in insider trading, he submitted false documents, gave false testimony and procured false testimony by his administrative assistant. Specifically, the information alleged that in December 2003 Mr. Smith submitted documents to the SEC in response to a subpoena which included a memorandum that appeared to support his claim that he traded in the shares of a Pharmaceutical Company based on personal research rather than inside information. The memo, dated prior to his trades, recommended that account executives at Broadband consider as “good candidates to watch” a series of companies, including the one in which he traded. Attached was a Forbes Magazine article about the Pharmaceutical Company. In July 2004 Mr. Smith testified before the SEC that he circulated the memo prior to his trades and that it constituted the basis for his trades.

After the SEC expanded its insider trading investigation, Mr. Smith submitted a similar memo to the SEC regarding an Implant Company. In April 2006, a memo with attachments which Mr. Smith claimed demonstrated he traded in the Implant Company based on his independent research was furnished to the SEC. This memo, like the one about the Pharmaceutical Company, was dated prior to his trades. Attached were two analyst reports recommending the Implant Company. The memo was purportedly distributed at Broadband. Later Mr. Smith asked his administrative assistant to confirm that she had discovered the memo while reviewing the files.

In fact, both memos, according to the information, were fabricated. Likewise, Mr. Smith’s administrative assistant did not discover the second memo while searching the files. Mr. Smith is due to be sentenced in March 2009.

Prior installments of this occasional series on the new Enforcement Manual have considered the Wells Process, Cooperation and Parallel Proceedings. The segment today will consider issues regarding the production of documents as to form.

The Sections of the Manual regarding the production of documents can be divided into two groups for purposes of discussion. The first group concerns what might be called the form – the cover letter, logs of withheld documents and required certifications. A second group focuses on how the production is actually made – e.g., paper or electronic, and the details and specifications of actually furnishing the material to the staff.

Typically, a request for information or testimony in either a formal or informal investigation begins with a request for documents. This request can be either voluntary or pursuant to a subpoena. While voluntary productions are usually made during informal investigations, the staff can also make informal requests during a formal investigation which may offer practitioners certain strategic advantages. Voluntary requests can include a request that documents be created such as chronologies of events, according to Section 3.2.3. While request recipients are under no obligation to create such materials for the staff, again there may be strategic reasons to favorably consider such a request.

The Manual discusses five key points regarding the form or manner of the presentation which should be considered. Typically, these sections are written as directives to the staff, informing them what to require from a producing party. A theme which threads through all of these procedures is completeness – the procedures the staff is to follow have redundant directives to ensure the production is complete (or that withheld materials are included on a log). A careful review of the directives is instructive for practitioners.

Cover letter: First, a cover letter should be included with the materials. That letter should discuss whether the materials sought by the subpoena have been produced. Conversely, if all requested materials have not been produced this fact should be noted.

Withheld materials: Second, the Manual discusses furnishing the staff with a list of withheld materials in Section 3.2.6.2. According to the Manual, the list should essentially include the kind of information that would be on a privilege log – that is, sufficient information to identify what has not been produced and the reason. Accordingly, the list should include: the author of the document; its date; the subject matter; the name of the person who has the item now or the last known person to have it; the name of everyone who had a copy; the names of everyone told about the contents of the document; and the reason it was not produced. In addition, if the document has been destroyed or lost, it should nevertheless be identified along with the date it was destroyed or lost.

Privilege logs: Third, Section 3.2.6.2.4 discusses privilege logs. This Section of the Manual directs the staff to obtain a privilege log which includes certain information and notes that a lack of key information may result in a waiver. The information the staff is directed to procure regarding each document withheld on a claim of privilege is: the identity and position of the creator; the creation date; the present or last known custodian; a brief description of the document including its subject matter; the identity and position of all persons or entities known to have been furnished the document, a copy of it or informed of its substance; the reason the document is not being produced; and the specific request in the subpoena to which the document relates. If a privilege is asserted in testimony to justify withholding a document from production, the staff is directed to take testimony on each of the points listed above.

Certifications: Fourth, the staff is directed to obtain certifications which will support the admission into evidence of the materials in any subsequent enforcement action. The certificates are to be obtained from the custodian and comply with Rules 902(11) and 902(12), Federal Rules of Evidence. Standard forms are contained in the Manual.

Confirmation of completeness: Finally, the staff is directed to request confirmation that all of the documents have been produced or are included on the logs of withheld material. If there is a settlement, the Manual states that the settling party will be required to execute a certificate of completeness as to the document production. That certification must acknowledge that the Commission relied on the completeness of the production and state that the producer made a diligent search of all files in his or her possession, custody or control that are reasonably likely to contain requested records and that all such materials have been produced or are recorded on a log. Alternatively, if the production is made by an entity, the certification must include a representation that a diligent inquiry of all persons who reasonably had possession of responsive documents has been made.