Full opinion text
MEMORANDUM OPINION JOHNSON, District Judge This cause came on to be heard on the plaintiffs petition for emergency relief freezing the assets of defendant Richard M. Scrushy (doc. 2). The plaintiff Securities and Exchange Commission (“SEC”) was present by and through its counsel of record, defendant Scrushy was present in person and through his counsel of record, and defendant HealthSouth Corporation (“HealthSouth”) was present through its counsel of record. The hearing commenced on April 9, 2003 and continued for 11 days, during which the court heard testimony and received evidence. At the close of the plaintiffs evidence, defendant Scrushy, in open court and on the record, moved to dismiss the claims against him. The court took said motion under advisement and the defendant thereafter presented evidence and witnesses in opposition to the plaintiffs motion. Based on the testimony heard, the evidence received and the arguments of the parties, the court makes the following findings of fact and conclusions of law: PROCEDURAL BACKGROUND The original complaint was filed in this case on March 19, 2003 (doc. 1) along with a petition for emergency relief freezing the assets of defendant Richard M. Scrushy and requiring HealthSouth Corporation to escrow extraordinary payments (doc. 3). The court granted said petition and set the matter for hearing on March 25, 2003 (doc. 5). On March 25, 2003, the court entered an Interim Order agreed to by the parties, and reset the petition for hearing on April 9, 2003 (docs. 10 and 12). On April 4, 2003, the plaintiff filed an amended complaint (doc. 21) which makes the following allegations against the defendants: Count I: That the defendants, from at least 1999 through the second quarter of 2002, in connection with the offer and/or sale of securities, by use of interstate commerce or the mail, obtained money, either directly or indirectly by misstatements of material facts or through the omission of material facts and that such transactions, practices and course of business operated as a fraud upon purchasers of the securities. Further, that the defendants knowingly, intentionally and/or recklessly engaged in this conduct and that they did so with the intent to deceive, manipulate or defraud, and that such conduct violates 15 U.S.C. § 77q(a). Count II: That the defendants, from at least 1999 through the second quarter of 2002, in connection with the purchase or sale of securities, by use of interstate commerce or the mail, employed schemes to defraud, made untrue statements of material fact and omitted material facts in order to make such statements, and engaged in practices which operated as a fraud and deceit upon the purchasers of the securities. Such conduct was undertaken knowingly, intentionally and/or recklessly and with the intent to deceive, and that such conduct violates 15 U.S.C. § 78j(b) and Rule 10b-5 thereunder (17 C.F.R. § 240.10b-5). Count III: Defendant HealthSouth violated 15 U.S.C. § 78m(a) and Rules 12b-20, 13a-l and 13a-13 thereunder (17 C.F.R. §§ 240.12b-20, 240.13a-l, and 240.13a-13) by filing annual and periodic reports with the SEC from at least 1999 through the second quarter of 2002 that materially misstated revenues, expenses, assets and liabilities. Count IV: Defendant Scrushy violated 15 U.S.C. § 78m(a) and Rules 12b-20,13a-1 and 13a-13 thereunder (17 C.F.R. §§ 240.12b-20, 240.13a-l, and 240.13a-13) by aiding and abetting HealthSouth’s filing annual and periodic reports with the SEC from at least 1999 through the second quarter of 2002 that materially misstated revenues, expenses, assets and liabilities. Such actions by Scrushy were knowing or reckless. Count V: Defendant HealthSouth violated 15 U.S.C. § 78m(b)(2)(A) by failing to make and keep books, records and accounts which accurately and fairly reflected transactions and dispositions of assets from at least 1999 through the second quarter of. 2002. Defendant HealthSouth further violated 15 U.S.C. § 78m(b)(2)(B) for the time period of at least 1999 through the second quarter of 2002 by failing to devise and maintain a system of internal accounting controls sufficient to assure that transactions were executed in accordance with management’s authorization; by failing to ensure that transactions were recorded as necessary (i) to permit preparation of financial statements in accordance with generally accepted accounting principles and (ii) to maintain accountability of assets; by failing to ensure access to assets was permitted only in accordance with management’s authorization; and by failing to ensure that the recorded accountability for assets was compared with existing assets at reasonable intervals and appropriate action was taken with regard to any differences. Count VI: Defendant Scrushy violated 15 U.S.C. § 78m(b)(2)(A) and § 78m(b)(2)(B) by aiding and abetting HealthSouth’s conduct alleged in Count V and that such conduct by defendant Scrushy was done knowingly or recklessly. Count VII: Defendant Scrushy violated 15 U.S.C. § 78m(b)(5) and Rule 13b2-l (17 C.F.R. § 240.13b2-l) thereunder by knowingly circumventing, knowingly failing to implement a system of internal accounting controls, or knowingly falsifying any book, record or account required by 15 U.S.C. § 78m(b)(2)(A), as prohibited by 17 C.F.R. § 240.13b2-l. Based on these allegations, the plaintiff requests this court to enjoin the defendants from engaging in the above-described activities and further to disgorge any ill-gotten gains and losses avoided as a result of the conduct alleged. Amended complaint at 16-18. The court notes that defendant Scrushy’s assets are currently frozen pursuant to a Temporary Restraining Order issued by this court on March 19, 2003 and continued in effect since that time. See doc. 75 at 4. PARALLEL CIVIL AND CRIMINAL PROCEEDINGS Discovery Considerations The SEC admitted in its closing argument that it patterned the complaint in this case after the guilty plea agreement entered by Weston Smith. This was revealed after defendant Scrushy’s counsel pointed out that the complaint in this case contains the same typographical errors as those in Smith’s guilty plea agreement. H.R.1962. However, by drafting its complaint from a’ criminal guilty plea agreement, the SEC omitted to include any reference to any rule of civil procedure or statute which gives this court the authority to maintain the asset freeze initially entered pursuant to a temporary restraining order. The SEC has asked this court to maintain the freeze until the conclusion of “the litigation.” The SEC failed to specify to which litigation it was referring: this matter, a criminal indictment everyone assumes to be in the near future, or the numerous other civil cases filed by stockholders and employees against defendants HealthSouth and Scrushy. The court thus finds the time for which the SEC seeks to have the freeze remain in effect to be speculative, at best. In attempting to state a legal basis for the relief sought in this action, the plaintiff has alternatively advanced theories under the Sarbanes-Oxley Act, the Securities Exchange Act of 1934, and the Securities Act of 1933. Counsel for the SEC stated: What this case is about isn’t seizing Mr. Scrushy’s assets, but preserving the status quo so that the money will be available to pay a final judgment so that thousands of little people who lost their life savings have a chance to get something back. Our claim at this point is approximately seven hundred and eighty-six million plus some interest. That includes full disgorgement, a one-time penalty on all gains, and an additional two time penalty on the insider trading gains or losses avoided. I just want to note to the Court that under the Sarbanes Act the penalties can also go to the investors. What we’re trying to do is preserve Scrushy’s assets until trial so that money is available. Hearing Record at 1859-1860. Let me talk about dissipation very briefly. We don’t have to go very far to show a risk of dissipation of assets. All we have to look at is their own motion to modify the asset freeze where they ask for fifty-seven million dollars and six hundred thousand a month.... I said at the outset that the investors have suffered enormous losses, ordinary people, as a result of the conduct that Mr. Scrushy and his henchmen, and I guess what I have to call hench women (sic). It would not be just to let Mr. Scrushy continue living the lifestyle of the rich and famous when every dollar he spends is one less dollar that will be around to compensate the victims at the end. Every dollar.... And what we are trying to do here is only preserve the status quo until trial so that money, if and when we win, and by the time it comes to trial, we’ll have a football stadium of witnesses, but if and when we win, that there’s something left for these people. And we ask you to maintain the freeze. Hearing Record at 1879-1882. The SEC argued in its Petition for Emergency Relief (doc. 2) that: [A]n asset freeze is appropriate to prevent Scrushy from dissipating and concealing assets that would otherwise be available to pay disgorgement and civil penalties in this case. Moreover, as shown by the declaration attached to the memorandum in support of this petition and by HRC’s public filings, HRC had made large extraordinary payments to its senior • officers in each past years (sic). No payments for HRC’s most recent fiscal year have yet been made. Scrushy remains in place as HRC’s Chairman of the Board and CEO and could extraordinary payments (sic). Thus, it is likely that HRC may soon make those payments for the most recent fiscal year. Petition at 3. Assuming the court could intuit from “Scrushy remains in place as HRC’s Chairman of the Board and CEO and could extraordinary payments (sic)” what it is the SEC alleges defendant Scrushy might do as Chairman and CEO, the fact of the matter remains that defendant Scrushy no longer holds these positions. H.R. 1713,1717-1718. Defendant Scrushy asserted his Fifth Amendment right upon being called to the witness stand by the SEC. H.R. 11. He did so on the advice of his counsel because of the pending criminal investigation against him. See e.g., H.R. 28. The court notes that the majority of the evidence presented by the SEC, for the purpose of this court maintaining the asset freeze, results from criminal investigations. Further, it is obvious from the SEC’s closing argument that it relied on this evidence. Counsel for the SEC stated: What is the evidence of fraud and [Scrushy’s] role? There are numerous plea colloquies now admitted into evidence. Of those, four — the colloquy of Mr. Owens, Mr. Livesay, Mr. Harris, and Mr. Smith — implicate Mr. Scrushy in the fraud. Mr. Owens and Mr. Smith held various positions at various times, including CFO, during their course of employment. They both affirmed, as do others in various parts, that beginning in 1996 or sometime prior to 1997, they and Mr. Scrushy recognized that the company’s real earnings would not meet Wall Street expectations. They determined numbers which were the desired earning numbers and instructed other employees to find ways to artificially inflate earnings. H.R. 1861-1862. The court questions the SEC, a civil investigatory body, for its use of the FBI to undertake discovery for this civil action, when the consequence of such methods is that the product of the FBI’s labor is non-discoverable to the defendant in this civil proceeding. See infra at note 11. It is obvious from the questions counsel for the SEC asked on direct examination of defendant Scrushy that the SEC had access to and analyzed the content of the CD admitted into evidence during this proceeding. However, said counsel also represented to this court that he had not furnished the defendant a copy of the CD because “it wasn’t his to give” and that he had not heard the conversation in question prior to it being played in open court. One witness called by the SEC was Greg Gauger, an FBI agent. H.R. 238. He testified that he personally participated in obtaining the recording in question by placing a recording device on William Owens. H.R. 241-243. The FBI then instructed Owens to return to work and talk to Scrushy to record a conversation with Scrushy. H.R. 243. Owens testified he wore a wire at the request of the FBI and U.S. Attorney’s office, not the SEC. H.R. 476. He also testified that the FBI directed him with respect to the tenor of questions he was to ask Scrushy. H.R. 479. Owens stated he met with FBI Agents Gauger and Kelly, and George Martin from the U.S. Attorney’s office. H.R. 477. Owens wore the wire knowing that FBI agents were monitoring the conversation. H.R. 481-482. The court asked counsel for the SEC to provide a copy of the CD to defendant Scrushy, to which counsel responded he would have to ask the FBI if he could have one. H.R. 251. Upon the court suggesting that the SEC provide the copy already in the courtroom to defendant Scrushy, counsel for the SEC stated, “It’s not mine to give, is the bottom line ...” H.R. 252. Rather, the CD was at all times in the custody of the FBI. H.R. 290. In fact, Owens’ testimony established that the CD is the result of the second attempt by the FBI to get statements by defendant Scrushy recorded. H.R. 301. SEC counsel Hicks also told the court, “I have never had possession of any transcripts or anything like that. I asked them to produce this tape this morning. They did. They told me some things that were on it. I have never listened to it. I listened to parts of it last night, but not all.” H.R. 348. The court inquired, “You mean to tell me you were going to offer a copy of the CD yesterday without ever having heard it?” Hicks replied, “At that point, yes, I knew what was on certain parts, but that’s all.” Id. The court further ordered the SEC to produce to the defendant the CD of the recording made the morning of March 18, to which SEC counsel Hicks responded “I don’t have any other tape. I don’t have this tape, frankly, but I don’t have any other tape.... ” H.R. 353. The court was inundated with similar incidents wherein the fact of an ongoing criminal investigation was raised to stymie defendant Scrushy’s efforts at discovery. Additionally, the testimony the court did hear raised serious questions of the witnesses’ motivation for his or her testimony. For example, Michael Vines testified he was told if he testified no charges would be brought against him. H.R. 81. He expounded that his deal with government was that if he testified against Serushy, he would not be criminally charged. H.R. 82. See also H.R. 98. The plaintiff offered into evidence Plaintiff Exhibits 12, 13, 14, 15 and 16, which consisted of the guilty plea agreements and Rule 11(f) statements of Weston Smith, William Owens, Emery Harris, Angela Ayers, and Ken Livesay. H.R. 230-284. However, the SEC stated the documents were not offered to prove its case, but rather to show a likelihood of prevailing later. Counsel for the SEC stated that the “fact that these people made statements at all is relevant on that point.” H.R. 235-236. He further represented to the court that Harris’ plea was offered into evidence because it tended “to show the underlying scheme.” H.R. 236. Upon objections, the SEC then asked the court to take judicial notice of just two plea colloquies instead of eight, those two being Owens’ and Smith’s. H.R. 356. SEC counsel Loomis stated “I’m asking the court to take judicial notice of the fact that there was a plea and the fact that they were found guilty by the courts of violations of the securities laws, statutes, anti-fraud provisions .... We are not asserting it for the truth of the matter.” H.R. 357. He continued, “Not the Rule 11 statements, but only the colloquies. For the purpose of the court taking judicial notice that the president and the COO and former CFO have pled guilty to securities fraud.” H.R. 357. Several days later, the SEC asked that the colloquies of Livesay, Harris, Ayers, Valentine, Morgan and Edwards, marked as Plaintiff Exhibits 25-27, be admitted “just for notice purposes, and also with respect to Ken Livesay and Mr. Harris because they’ve invoked their Fifth, they are unavailable and therefore statements against penal interest (sic).” H.R. 1822-1823. He also stated “we’re trying to show that these people have pled guilty and have directly implicated Mr. Serushy.” H.R. 1823. At one point, during a conference held outside the presence of the general public, the court had to ask the U.S. Attorney, Alice Martin, who was not requested to attend the side bar, to leave. H.R. 282. Shortly thereafter, the U.S. Attorney’s Office and Department of Justice filed their first motion to intervene in the proceedings (doc. 60). H.R. 348. After court adjourned for the day, Richard Smith, Deputy Chief Counsel for Department of Justice, Fraud Section, Criminal Division, stated on the record, “I filed a motion to intervene in these proceedings regarding the Court’s ruling you made during Mr. Gauger’s testimony. You ordered Mr. Gauger to produce audiotapes of conversations that took place on March 18, 2003.” H.R. 449. The court responded, to which Richard Smith stated: That is what the Department of Justice is objecting to ... because that would provide discovery that’s not available under the Rules of Criminal Procedure to the defense. The tape, what we’ve turned over to the SEC was a four-hour tape that took place of conversations in the afternoon, from about 3:00 to 5:30 p.m. The tape that’s referred to at the beginning of that ... is about a taped conversation that took place from 8:00 to 12:00 ... The Department is objecting to turning over that evidence because they are using this civil proceeding to obtain evidence that they would not be entitled to at this stage of the criminal investigation in an effort to disclose any conversations of other witnesses or people that are on those tapes that either would be targets, subjects of the investigation. We don’t want to identify for the public or for the defense other people who may be witnesses or targets. H.R. 450. Mr. Smith then continued by stating, “There are a number of conversations that the defense would not be entitled to under the Rules of Criminal Procedure.” The court reminded Mr. Smith that this is a civil case, to which Mr. Smith replied, “Right. In United States v. Campbell, a Fifth Circuit case, that makes it clear that in a civil proceeding the defendant should not be allowed to get discovery they would not otherwise be entitled to in a criminal proceeding.” H.R. 453. He continued, “And therefore the government is objecting to the Court, with all due respect, ordering the FBI to turn over a tape that, according to Campbell, would not be discoverable in a criminal case to the defense in a civil proceeding.” H.R. 453. The court noted that the Department of Justice asked for a continuance of 60 days in its motion and that the court would have to weigh the harm to the defendant of a continuance of the freeze order of 60 days “in order for you to do whatever discovery needed to be done in the criminal case.” H.R. 453. Mr. Smith responded that the government only needed the stay for 60 days if the Court required the government to turn over the tape. He further stated that he was requesting that the court reconsider its order. He stated, “Do not disclose to the defense evidence from a criminal case what they would not be entitled to under the Rules of Criminal Procedure, and that’s why we filed a motion to intervene.” H.R. 453. See also Motions to Intervene (docs. 60, 62, 81, 85 and 94), at 2. The government having repeatedly asked the court to stay this matter raised the very question with which this court is now confronted, that being defendant Scrushy’s inherent inability to present evidence in his defense due to the ongoing criminal investigation. Although the SEC repeatedly represented that it was not offering the plea colloquies for the truth of the matters asserted therein, counsel’s statements in closing argument contradict that representation. Because the individual witnesses who had already entered pleas, or already arranged to enter pleas, when called by defendant Scrushy to testify, stated only that they invoked their Fifth Amendment privilege against self-incrimination, defendant Scrushy was effectively denied his right to cross examine these witnesses. Additionally, defendant Scrushy was denied the right to explore these witnesses’ motives or reasons for entering guilty plea agreements. Because the SEC then represented to the court in its closing argument that these plea colloquies implicate the defendant, cross examination was critical to the defendant’s right to a fair hearing. Further adding to this inability to engage in cross examination was Mr. Richard Smith’s representation to the court that should Bill Owens be called to the stand, he would be forced to file another motion to intervene to object to the defendant “attempting to put on a witness in a criminal case in a civil proceeding.” H.R. 460. He made similar motions with regard to every individual who was called to testify by defendant Scrushy who had already entered into a plea bargain arrangement with the U.S. Attorney’s Office. See H.R. 474 (Richard Smith further filed a Motion to Quash subpoenas, and to Prohibit Compelled Testimony, and for Stay of Discovery). Upon Owens’ invocation of his Fifth Amendment right, Mr. Smith, from the Department of Justice, argued to the court that Owens was within his rights to take the Fifth. H.R. 483. Owens’ own attorney (Helmsing) was present in the courtroom at the time. Richard Smith further stated that the plea agreement entered by Owens did not “shield him from liability from the state or any other regulatory agency that would have jurisdiction over the crimes he committed. We do not bind the United States Attorney’s office or any other law enforcement agency of taking actions on the conduct he’s pled to ... we did not provide him any shield from liability from other agencies.” H.R. 485. The court notes that, in spite of Richard Smith’s representation, the plea agreements were in fact signed not only by the U.S. Attorney’s Office, but also the Department of Justice, Fraud Section, Criminal Division. During Owens’ testimony, Richard Smith repeatedly objected. He stated that some of defense counsel’s questions and answers thereto would “disclose some evidence of a potential witness or other members, people that could testify before the grand jury or other potential targets of this investigation. And we do not want to go into that area.” H.R. 493. He then objected, “[t]his is the impetus of the discovery the government has been objecting about because we’re going to start disclosing people who are either subjects or targets of a grand jury investigation or potential witnesses who could potentially be intimidated or harassed by this.” H.R. 495. Smith objected to most questions to Owens by defense counsel not directly related to the contents of the wire. See e.g. H.R. 506 (by Richard Smith: “I’m going to object to this line of questioning. It is clearly out of the scope of what’s on the tape, Your Honor, at this point in time”). See also H.R. 510, 513 (by Richard Smith: “I’m going to object at this time. Ultimately, it’s going to be fundamental in the criminal case, Your Honor”); H.R. 515 (“I’m going to object to this because it’s eliciting evidence that’s going to be relevant to the criminal case, and ask the Court to not require the witness to answer that question”). In conference, Richard Smith informed the court that the questions defense counsel Sjoblom was asking Owens are part of another recorded conversation contained on the same CD that was not played in court. H.R. 501-502. He stated that other people which are going to become targets, or subjects of the ongoing investigation, would be disclosed. H.R. 502. Although much of the SEC’s ease is based on the allegation of a group of HealthSouth employees who referred to themselves as “the family,” when defense counsel questioned Owens about it, Richard Smith objected, stating that Owens would “disclose the targets, the subjects of an ongoing investigation who may not know that they are targets.” H.R. 533. Even though most of the Department of Justice’s objections were overruled, because of the criminal investigation, Owens invoked his Fifth Amendment rights in response to this question. However, responses to questions such as the ones about “the family” were crucial to the defense. See Amended Complaint, ¶ 19. Defendant Scrushy’s inability to examine these witnesses effectively denied him his right to confront his accusers, while at the same time the SEC was relying on the colloquies of said accusers to attempt to freeze defendant Scrushy’s assets. The SEC alleged in its amended complaint that “[HealthSouth’s] senior accounting personnel then convened a meeting to ‘fix’ the earnings shortfall. By 1997, the attendees referred to these meetings as ‘family meetings’ and referred themselves (sic) as ‘family members.’ ” Amended complaint ¶ 19. Of those witnesses who did not invoke the Fifth Amendment, each testified he or she had never heard of this term being used at HealthSouth. H.R. 18-19 (Goodreau); 151 (Henze); 731 (Tanner); 771-772 (Esclo-van); 998 (Taylor); 1258 (Douglas); 1294 (Whitehurst); and 1418 (Fowler). Defense counsel argued that: It has also become abundantly clear that what is going on here is that the Department of Justice in the middle of a criminal proceeding is using the Securities and Exchange Commission, a civil body, to get this man cornered so he cannot defend himself, take away his property, deny him the right to confront his accusers, and put in one scrap of evidence out of context. I think that that is fraught with many constitutional problems. I think that this hearing, as we had suggested in our brief, is clearly the precursor for a setup to the criminal indictment. H.R. 495. He further stated “I think they have waived grand jury information by bringing it into this courtroom and playing it in this court. I think they have waived any investigative privilege that they are talking about by bringing this evidence into this courtroom, offering it up, talking about how they did this, the monitoring process, laying the foundation.” H.R. 496. For example, Anthony “Tony” Tanner was called by defendant Scrushy to testify in his behalf. Tanner did so, testifying about how HealthSouth was formed, who its founders were and how they divided the founders’ duties from HealthSouth’s inception until Tanner retired in 1999. The first question counsel for the SEC asked Tanner on cross-examination was “Did Mr. Serushy contact you over the past weekend?” H.R. 733. This was followed by “Did he state in substance that he’s always been there for you and now you have to be there for him?” H.R. 733. Thereafter, defense counsel asked Tanner if the SEC spoke to him about a conversation he had with defendant Serushy. Upon answering “no,” Tanner’s attorney questioned whether Tanner’s contacts with the government were relevant to the proceeding. The court noted that the government had intervened in the case. Defense counsel then questioned Tanner as to whether the FBI or the U.S. Attorney’s Office had spoken to him before his testimony, to which Tanner replied “yes.” H.R. 750-751. At that point, Pat Meadows, with the U.S. Attorney’s Office, stated he objected to any testimony about any such conversation, and noted for the court that he had filed an appearance in this case. Upon pointing out that the government had not filed a motion to intervene on behalf of the government with respect to this witness, Mr. Meadows agreed, but stated that if he had spoken to the FBI, it could interfere with an ongoing criminal investigation. H.R. 751. Tanner then testified that the FBI, specifically Agent Kelly, asked him about a conversation Tanner had with Serushy during the weekend recess of these proceedings. H.R. 752. Upon questioning, Tanner testified that FBI Agent Kelly contacted Tanner’s daughter at their home. H.R. 754-755. This contact was made following the first day of these proceedings, after Diane Henze, called as a witness by the SEC, testified that her complaint to Corporate Compliance went to Tanner, and Teresa Sanders, also called as a witness by the SEC, testified that she went to Tanner after Mike Martin withdrew her access to field location information. H.R. 159; 180. It is obvious from the timing of the FBI’s contact with Tanner’s daughter that the FBI was using this civil proceeding to glean evidence it may use in its criminal investigation of defendant Serushy, as Tanner’s testimony was that the FBI agent called his home and spoke to his daughter the evening of Henze’s testimony. H.R. 755. Having the FBI call his home was intimidating to him and his daughter. H.R. 764. Tanner stated he called Kelly back, and Kelly asked him about the statements of witnesses who had already testified before this court. H.R. 756. In a conference outside the presence of the general public on this same topic, SEC counsel Hicks states “I was told ... Mr. Tanner’s lawyer contacted somebody, I think on the DOJ side, and related the conversation and expressed concerns about obstruction of justice and things like that and I was advised of that. I don’t remember by who. It was probably someone on the other side. And you know, I mean, that to me — I think I got some more details later from Mr. Kelly just about what was asked or something like that.” In Chambers Hearing Transcript at 9. The court inquired of Mr. Hicks how often he met with Agent Kelly, to which Hicks replied, “I don’t generally meet with him, I run into him.” Id. at 10. Hicks then represented to the court that he did not remember whether the FBI or U.S. Attorney’s Office provided him with the CD of Owens’ conversation, but that it was someone on the “criminal side.” Id. at 10-11. He then remembered that he received the information about Tanner from Agent Kelly. Id. at 11, 12. The court at that point reminded the SEC that witness tampering, by the SEC or the FBI, was illegal under 18 U.S.C. § 1512(b). Id. at 13. SEC counsel Loomis also reminded defense counsel during this conference that the SEC never had possession of the CD. Id. at 15. SEC counsel Hicks then reiterated that he never listened to the CD and never saw a transcript of it, but had been given indications of what was in that conversation. Both Hicks and Loomis then again stated they never had the CD. Id. at 15. The representations to Hicks and Loomis about the contents of the CD were made by FBI Agent Gauger. Id. at 16-17. Hicks then represented to the court that perhaps one of the Assistant U.S. Attorneys told him what was on the CD. Id. at 17. Hicks also represented that the U.S. Attorney’s Office believed the SEC to be causing problems and walled them off from “99% ... of what they have.” Id. at 18. Weston Smith, who had previously pled guilty, was called to testify. Richard Smith again stated, “The Government has filed a motion to intervene asking the Court to preclude or prohibit any questions regarding a criminal investigation. Mr. Weston Smith is one of the individuals who pled guilty as part of the ongoing investigation.” H.R. 1023. Weston Smith testified that he had entered a guilty plea in a criminal proceeding in this matter on March 19, 2003. H.R. 1036. Richard Smith objected to many questions posed to this witness, although the witness pled the Fifth Amendment to most of the questions. In response to a question concerning whether there was a scheme at Health-South in which he and his wife came up with the number of 175 million dollars as the effect of Transmittal 1753 so that he could reduce Wall Street earning expectations, Richard Smith again objected and asserted that the questioning would disclose information relevant to the criminal investigation of other witnesses. H.R. 1046. Upon being asked if the SEC alleged more than one type of fraud in which Weston Smith participated, Richard Smith again objected, claiming that “[i]f there is another fraud, we’re going to object that it’s getting into the criminal case once again. And we would ask the Court to not require the witness to answer that question.” H.R. 1054-1055. The SEC introduced Weston Smith’s plea agreement, Rule 11(f) statement and Information to which he pled guilty as Plaintiff Exhibit 12. H.R. 1096-1097. Smith’s plea was also attached to the SEC’s Rule 65(b) certification when the SEC sought the ex parte temporary freeze in this matter. A similar scenario occurred during the testimony of Rebecca Kay Morgan, who had her own counsel, with Richard Smith objecting to defense counsel’s questions and the witness pleading the Fifth Amendment. H.R. 1107-1126. The same occurred during the testimony of Kenneth K. Livesay, who similarly had his own counsel. H.R. 1126-1137. When Malcolm “Tad” McVay took the witness stand, also represented by his own counsel, Richard Smith was again in court. H.R. 1568. Richard Smith stated in open court that McVay had knowledge of ongoing criminal investigations and was in discussions with the U.S. Attorney’s Office, thus he requested to be allowed to orally amend his motion to include McVay in his objection that no witness be asked any questions regarding ongoing criminal investigation. H.R. 1568. McVay testified that he signed a plea bargain agreement on April 21, 2003, after he was subpoenaed in this case. H.R. 1582-1583, 1585. McVay pled the Fifth Amendment to almost all questions. H.R. 1571-1590. SEC counsel Hicks tendered McVay’s plea agreement, Rule 11(f) and information as Plaintiff Exhibits 51-53. H.R. 1587. McVay had entered a cooperation agreement with government and was informed that a § 5K1.1 motion for substantial assistance would be made on his behalf. H.R. 1588-1590. Emery Harris’ testimony was similar to the other witnesses who had entered plea arrangements with the U.S. Attorney’s Office. Harris was present with his attorney. H.R. 1598. Richard Smith filed a motion to intervene. H.R. 1598. Harris then asserted his Fifth Amendment right to almost every question asked of him. H.R. 1599-1617. Interestingly, although the factual basis for the case before this court involves, in great part, false journal entries, Richard Smith objected to these questions, stating the questions were directed to matters that delve into the criminal investigation. H.R. 1608-09. When Harris was asked if he was a member of “the family,” Richard Smith objected. H.R. 1611-1612. When Harris was asked if Kay Morgan falsified reconciliation statements to understate deposits at PNC Bank, Richard Smith objected. H.R. 1615. The FBI raided defendant Scrushy’s office on March 18, 2003 at approximately 5:15 p.m. H.R. 784,1209, 1411. Defendant Scrushy has had no access to his office since that date. H.R. 1211. His contract with HealthSouth was terminated the next day. H.R. 1211-1212, 1705-1706, 1713. Joel Gordon became interim chairman the day following FBI raid. H.R. 1705. Curt Miller, an accountant with Ernst & Young, HealthSouth’s outside auditors, testified that Ernst & Young had been contacted by both the U.S. Attorney and the SEC and they were cooperating with them. H.R. 1489. Likewise, Kelly Coleman, a rebuttal witness for the SEC, testified that she had spoken with the U.S. Attorney’s Office and Department of Justice about her testimony. H.R. 1814. While the court understands that the FBI, the U.S. Attorney’s Office and the Department of Justice sought to prevent the defendant from obtaining information he would not be entitled to in a criminal proceeding, this court does not have a criminal proceeding before it. While the governmental entities were within their rights to object to any such testimony, those very objections, and the ongoing criminal investigations, prevented this court from hearing substantial evidence to fairly render an opinion as to defendant Scrushy’s involvement in the alleged scheme. Without such evidence, this court is being asked to rule on whether this individual should be deprived of every asset he has for the indefinite future. The SEC admitted in its Rule 65(b) certification filed with the court that it was not able to ascertain which of defendant Scrushy’s assets, if any, are attributable to the alleged ill-gotten gains and therefore all of his assets should be frozen. See Plaintiff’s Certificate Pursuant to Rule 65(b) (doc. 3), ¶ 6. Although not required to do so, defendant Scrushy proved that at least 49 million dollars of his assets since 1993 are not derived from his HealthSouth income, bonus or sale of stock. H.R. 385-387 and Defendant Exhibits 22 and 23 (filed under seal). Furthermore, although the SEC introduced and relied upon the plea colloquy of Kay Morgan, Angela Ayers, Virginia Valentine and Cathy Edwards, none of these employees in HealthSouth’s accounting department actually implicated defendant Scrushy in their fraud. They all stated in the colloquies that they committed their fraud at the direction of Owens, Smith and Livesay, because they would get bonuses, keep their jobs and get stock options. Plea colloquy of Morgan, Ayers, Edwards and Valentine, CR 03-J-183-S at 18-22, submitted as Plaintiff Exhibit 25. Livesay stated in his colloquy that he got to keep his job, was paid a nice salary and got a bonus “most every year.” Plea colloquy of Livesay, CR 03-C-182-S, at 12-13, submitted as Plaintiff Exhibit 26. Nowhere does Livesay state he took any action at the behest of defendant Scrushy. Additionally, the court notes that Harris, during his colloquy, testified that he never saw a report signed by anyone and that he changed no records before 1999. Plea colloquy of Harris, CR 03-J-157-S, at 42-43, submitted as Plaintiff Exhibit 24. Finally, despite the allegations of the SEC, it filed with the court and referred to in pleadings the SEC testimony of defendant Scrushy taken on March 14, 2003, before the SEC allegedly “became aware” of Weston Smith’s intention to plead guilty. In said testimony, defendant Scrushy denied any wrongdoing. March 14, 2003 transcript (doc. 9) at 54. The testimony elicited at the March 14, 2003 deposition concerning the SEC’s investigation into allegations of insider trading involving Transmittal 1753 is as likely, if not more likely, the topic of discussion between Owens and Scrushy on the CD on which the SEC relies so heavily as evidence of the scheme to inflate assets to meet Wall Street expectations. At the time of the deposition, five days before the complaint was filed in this case, the SEC allegedly knew nothing about any of the violations alleged here other than those related to Transmittal 1753. As long as a criminal investigation is ongoing and the individuals who have pled guilty have not yet been sentenced, the key witnesses to defendant Scrushy’s involvement or lack thereof will refuse to answer the very questions that would either support or rebut the SEC’s allegations. Yet these are the same witnesses upon which the SEC relies to keep the asset freeze in place. This court has no way to predict when the criminal case may be resolved so that this case may proceed without these crucial witnesses who are taking the Fifth Amendment. Because of the ongoing criminal investigation, defendant Scrushy has been placed in the precarious position of either waiving his Fifth Amendment rights and defending himself in the matter before this court, or asserting the privilege and probably losing this civil proceeding. While such a choice may not be unconstitutional, this court may still exercise its discretion to stay this case in the interest of justice. See Baxter v. Palmigiano, 425 U.S. 308, 318-19, 96 S.Ct. 1551, 47 L.Ed.2d 810 (1976); S.E.C. v. Dresser, 628 F.2d 1368, 1375 (D.C.Cir.1980); Brock v. Tolkow, 109 F.R.D. 116, 119 (E.D.N.Y.1985). The exercise of the defendant’s Fifth Amendment rights should not be made unnecessarily costly. United States v. Certain Real Property, 55 F.3d 78, 84 (2nd Cir.1995); citing Spevack v. Klein, 385 U.S. 511, 515, 87 S.Ct. 625, 17 L.Ed.2d 574 (1967). THE MERITS OF AN ASSET FREEZE Although the SEC argued at the hearing in support of its argument that the standard it must meet to retain the asset freeze is lower than that for a preliminary injunction, see H.R. 1860, it cited no cases during the hearing in support of this theory. Of the cases it did cite, one is to inferences that can be drawn from witnesses taking the Fifth Amendment (H.R. 1879) and two involve the issue of tracing the assets sought to be frozen (H.R.1880). Of the latter two, one case does not state on what authority it sought to keep the assets frozen after issuing the TRO. In the other case, SEC v. Current Financial Services, 62 F.Supp.2d 66 (D.D.C.1999), the asset freeze was issued as a preliminary injunction. In that case, the court noted that: District courts have the equitable power to use ancillary remedies to preserve assets, as conferred by Sections 20(b) and 22(a) of the Securities Act of 1933, 15 U.S.C. §§ 77t(b), 77v(a) and by Section 21(d) of the Securities Exchange Act of 1034, 15 U.S.C. § 78u(e). See SEC v. United Communications, 899 F.Supp. 9, 11-12 (D.D.C.1995). “It has been specifically recognized that a freeze of assets may be appropriate to assure compensation to those who are victims of a securities fraud.” SEC v. General Refractories Co., 400 F.Supp. 1248, 1260 (D.D.C.1975). SEC v. Current Financial Services, 62 F.Supp.2d at 67-68. That Court then stated, to ensure compensation to the victims in its case, “the Court finds it reasonable to maintain the freeze order because plaintiff has demonstrated that the potential disgorgement it could receive in this case far exceeds the amount that is frozen in the account.” Id., at 68 citing SEC v. Grossman, 887 F.Supp. 649, 661 (S.D.N.Y.1995). However, courts have also recognized that the primary purpose of disgorgement is to prevent the defendant’s unjust enrichment, not to compensate investors. SEC v. Grossman, 2003 WL 133237 (S.D.N.Y.2003); SEC v. Tome, 833 F.2d 1086, 1096 (2nd Cir.1987); cert. denied, 486 U.S. 1014, 108 S.Ct. 1751, 100 L.Ed.2d 213 (1988). Once the primary purpose of disgorgement has been served by depriving the wrongdoer of illegal profits, the equitable result is to return the money to the victims of the violation. SEC v. Drexel Burnham Lambert, Inc., 956 F.Supp. 503, 507 (S.D.N.Y.1997). However, such a distribution is not required by statute and, where distribution to victims of securities fraud is impractical, courts have permitted payment of disgorged funds to the Treasury. See e.g., SEC v. Dimensional Entm’t Corp., 1996 WL 107290, *2, 1996 U.S. Dist. LEXIS 2824 at *5-6 (1996); SEC v. Lorin, 869 F.Supp. 1117, 1129 (S.D.N.Y.1994). In every case this court has found which addressed the basis for an asset freeze, each began with a TRO, as was entered by the court here. Thereafter, the court entered a preliminary injunction to maintain the freeze. See e.g., SEC v. Infinity Group Co., 212 F.3d 180, 186 (3rd Cir.2000); SEC v. Interlink Data Network of Los Angeles, Inc., 77 F.3d 1201, 1203 (9th Cir.1996); SEC v. Cherif 933 F.2d 403, 407 (7th Cir.1991). Although the SEC in the case before this court has stated it does not seek a preliminary injunction, the court has determined that no other basis for granting the relief requested by the SEC exists. The plaintiffs counsel represented to the court that the standard it must prove for the asset freeze to remain in effect is “a reasonable likelihood, a likelihood, some probability of success. It is a lesser standard that even for a preliminary injunction” (H.R.1860). The court finds that the SEC has provided no law to the court on what standard this might be if not within the realm of a preliminary injunction. Regardless of the elements plaintiff believes it must establish, the plaintiff must, at a minimum, establish that it has some likelihood of actually succeeding on the merits of the case, for obvious reasons. See SEC v. Cavanagh, 155 F.3d 129, 137 (2nd Cir.1998). The court is mindful that the SEC’s determination that a violation occurred does not obviate the need for an independent judicial determination. See SEC v. Management Dynamics, Inc., 515 F.2d 801, 806-807 (2nd Cir.1975). The Court in Management Dynamics opined: We scarcely mean to imply that judges are free to set to one side all notions of fairness because it is the SEC, rather than a private litigant, which has stepped into court. The securities laws ... hardly evidence a Congressional intent to foreclose equitable considerations by the district court .... ‘[I]n deciding whether to grant injunctive relief, a district court is called upon to assess all those considerations of fairness that have been the traditional concern of equity courts.’ But the statutory imprimatur given the SEC enforcement proceedings is sufficient to obviate the need for a finding of irreparable injury at least where the statutory prerequisite the likelihood of future violation of the securities laws has been clearly demonstrated. Management Dynamics, 515 F.2d at 808 (citations omitted). The Second Circuit in Unifund SAL reasoned that: even when applying the traditional standard of ‘likelihood of success,’ a district court, exercising its equitable discretion, should bear in mind the nature of the preliminary relief the Commission is seeking, and should require a more substantial showing of likelihood of success, both as to violation and risk of recurrence, whenever the relief sought is more than preservation of the status quo. Like any litigant, the Commission should be obliged to make a more persuasive showing of its entitlement to a preliminary injunction the more onerous of the burdens of the injunctions it seeks. In some cases a preliminary injunction can have very serious consequences ... Unifund SAL, 910 F.2d 1028, 1039 (2nd Cir.1990) (citations omitted). The sole issue before this court is whether or not the plaintiff is entitled to maintain a freeze on the defendant’s assets based on the evidence presented to this court. The court in Management Dynamics stated that “[ujnlike private actions, which are rooted wholly in the equity jurisdiction of the federal courts, SEC suits for injunctions are ‘creatures of statute.’ ‘[Pjroof of irreparable injury or the inadequacy of other remedies as in the usual suit for injunction’ is not required.” Id., at 808. As the court discusses, infra, evidence of defendant Scrushy’s involvement in the alleged scheme to inflate profits to meet Wall Street expectations is lacking. The SEC failed to set forth sufficient evidence to demonstrate that defendant Scrushy participated in the current alleged violations. Perhaps in recognition of this fact by the SEC, the sole issue it has placed before the court is whether or not this court’s prior Order freezing defendant Scrush/s assets should remain in effect pending the outcome of this litigation. The court in SEC v. Unifund SAL, 910 F.2d 1028, 1041 (2nd Cir.1990) stated, “Unlike the injunction against securities law violations, the freeze order does not place appellants at risk of contempt in all future securities transactions. It simply assures that any funds that may become due can be collected. The order functions like an attachment. That does not mean, however, that its issuance must be tested against state law standards, as would be the case if the relief were sought pursuant to Rule 64 of the Federal Rules of Civil Procedure. Congress has authorized the Commission to obtain preliminary injunctive relief upon a ‘proper showing,’ and it is a matter of federal law whether the showing the Commission has made is sufficient to support an interlocutory freeze order.” Applying the standard from Unifund SAL, the court considers what constitutes a “proper showing” as it is applied to the asset freeze. In the facts before this court, there is no evidence of a reasonable likelihood that the alleged wrongs will be repeated. Thus, even if this court assumes that the plaintiff is seeking an injunction against defendant Scrushy based on alleged violations of Section 10(b), 15 U.S.C. § 78j(b), the comb has no evidence of a likelihood of the wrong being repeated. THE INSIDER TRADING ALLEGATIONS An insider trading violation requires proof not only that the defendant traded on the basis of material nonpublic information but also that in doing so he knew or should have known that he was breaching a fiduciary duty. Unifund SAL, 910 F.2d at 1039, citing Dirks v. SEC, 463 U.S. 646, 660, 103 S.Ct. 3255, 3264, 77 L.Ed.2d 911 (1983); Chiarella v. United States, 445 U.S. 222, 230-32, 100 S.Ct. 1108, 1115-17, 63 L.Ed.2d 348 (1980). In addition to fact that the SEC has relied almost solely upon evidence attained from the parallel criminal investigation as well as colloquies not offered for the truth of the matter asserted therein, the SEC has also failed to establish that the two trades at issue, the one made May 14, 2001 and the other made July 31, 2002 were made with the requisite scienter. SEC maintains that defendant Scrushy, from at least 1999 through the second quarter 2002 in connection with the purchase and sale of securities engaged in fraud in connection with these transactions. The time line for defendant Scrushy’s trades is as follows: In 1992 and 1993, Scrushy was granted the stock options pursuant to a 1991 Stock Option Plan. H.R. 1147-1148, 1150-1151. These options were exercised by him on May 14, 2002, the day the options expired pursuant to the Plan in 1991. See Defendant Exhibit 33C. Prior to May, 2002, defendant Scrushy attempted to extend the time for exercising said stock options. H.R. 1149. On May 14, 2002, on the last day for the exercise of his stock options, defendant Scrushy exercised them in a same day sale. Defendant Exhibit 8D. Thereafter, on May 17, 2002, the Centers for Medicare and Medicaid Services (“CMS”) issued Transmittal Letter 1753 regarding Medicare reimbursement provisions for group versus individual physical therapy. HealthSouth did not get a copy of this Transmittal Letter. An attorney working for HealthSouth had seen a copy of it and asked other HealthSouth employees if they had seen it. Upon informing the attorney that they had not, Health-South, through Susan Smith, Director of Reimbursement, followed up with Blue Cross Blue Shield. Defendant Exhibit 31. Blue Cross Blue Shield was ambiguous as to the Transmittal Letter’s application to HealthSouth. H.R. 1174, 1175. William Horton, corporate counsel for Health-South, testified that he could not determine the applicability of Transmittal 1753 just by reading the Transmittal Letter. H.R. 1173. He stated 1753 was a directive to Medicare Part B carriers and its applicability to HealthSouth was unclear. Id. In early June, 2002, Susan Smith received a copy of Transmittal Letter 1753. Defendant Exhibit 31. Later that same month, Blue Cross Blue Shield notified HealthSouth that Transmittal Letter 1753 did not apply to HealthSouth. Defendant Exhibit 31; see also Defendant Exhibit 8K. On July 18, 2002, representatives of HealthSouth met with representatives for CMS in Washington D.C. for the purpose of determining whether Transmittal Letter 1753 applied to HealthSouth. CMS was not sure if it applied either and wanted to study the applicability issue further. H.R. 1156; Defendant Exhibits 31 and 8K. On July 30, 2002, certain provisions of the Sarbanes-Oxley Act became effective. Although existing executive loans were “grandfathered” in by the provisions of the Act, new executive loans were made illegal effective July 30, 2002. Sarbanes-Oxley Act § 402,15 U.S.C. § 78m. Therefore, on July 31, 2002, defendant Scrushy retired his loan pursuant to approval by the Compensation Committee for HealthSouth, after recommendation by corporate counsel for HealthSouth, William Horton. H.R. 1151-1155, 1160, 1162-1164; Defendant Exhibits 8F, 8N, and 80. On August 6, 2002, Owens told defendant Scrushy that the impact of Transmittal Letter 1753 would be only 15 to 20 million dollars. H.R. 802-03. In its Amended Complaint, the SEC asserts that 20 million dollars was indeed the impact Transmittal 1753 would have on Health-South’s profits. Amended Complaint, ¶¶ 35-37. The evidence before the court establishes otherwise. Patrick Foster, President of the Inpatient Division, testified that his initial projection of the impact of Transmittal 1753 on solely his division was 22 million dollars. H.R. 856, 909. Larry Taylor, President of the Surgery Centers Division, testified that his projection of the impact of Transmittal 1753 on his division alone was approximately 30 million dollars. H.R. 1004. On August 8, 2002, the Board of Directors met and agreed that management should meet again with CMS in Washington as soon as possible to obtain further clarification and assess the impact on HealthSouth. Defendant Exhibit 8K. As of that date, the impact of Transmittal 1753 was still undetermined. H.R. 1171. On August 14, 2002, forms 10-Q and 8-K were filed with the SEC. Said forms were signed by defendant Scrushy as CEO and CFO Weston Smith. Plaintiff Exhibits 7 and 8. On August 15, 2002, management representatives from HealthSouth met with representatives from CMS in Washington D.C. again. H.R. 1171, 1176. At that meeting Tom Grissom, author of Transmittal Letter 1753, was present and CMS informed HealthSouth that the guideline did apply to HealthSouth. Defendant Exhibit 31; see also H.R. 1169-1178. Mr. Horton advised HealthSouth management that, since there was no definitive information regarding the impact of transmittal 1753 until August 15, 2002, the lack of 10-Q disclosure regarding this event was merely lack of disclosure of something management did not know and therefore could not disclose. Defendant Exhibit 31; H.R.1180-1181. During the following two weeks in August 2002, HealthSouth determined that the financial impact of Transmittal Letter 1753 would be 175 million dollars per year. Defendant Exhibits 31 and 8M. See also H.R. 1176-1178. Owens and Susan Smith were involved in calculating this impact. H.R. 1177. On August 27, 2002, HealthSouth issued a press release regarding this impact. H.R. 1177. In September, 2002, HealthSouth retained FTI to confirm its analysis of the impact of Transmittal 1753. FTI’s initial analysis, although not completed, fully supported HealthSouth’s analysis of the impact being 175 million dollars per year. Defendant Exhibit 42. See also H.R. 1182. On October 30, 2002, William Owens as CEO of HealthSouth issued a press release that defendant Scrushy was cleared, through an outside investigation by a national law firm, Fulbright & Jaworski L.L.P., of any allegations of inside knowledge concerning the impact of Transmittal 1753. Defendant Exhibit 8R. The Fulbright report concluded: Fulbright & Jaworski L.L.P. has uncovered no oral interview or written document (including electronic data) that establishes that Mr. Scrushy was aware at the time of his option exercise and sale of HEALTHSOUTH common stock on May 14, 2002 of the pending issuance of Transmittal 1753 [the Medicare rule change], Fulbright & Jaworski L.L.P. also has uncovered no oral interview or written document (including electronic data) that establishes that Mr. Scrushy knew prior to the time of the transfer by Mr. Scrushy of HEALTHSOUTH common stock to HEALTHSOUTH on or about July 31, 2002, in satisfaction of the principal amount of loan made to him by HEALTHSOUTH under its 1999 Executive Loan Plan of: (i) Transmittal 1753 [the Medicare reimbursement rule change]; (ii) the application of Transmittal 1753 [the reimbursement rule change] to the Company’s various outpatient therapy services; or (iii) the Transmittal’s potential effect on the Company. Id. SCIENTER Transmittal 1753 To establish that it has some likelihood of success on the merits, the SEC must make a showing of the “requisite scienter to establish securities fraud.” SEC v. Infinity Group Co., 212 F.3d 180, 191 (3rd Cir.2000) citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). “Scienter is a mental state embracing intent to deceive, manipulate or defraud.” Infinity Group, 212 F.3d at 192, quoting Hochfelder, 425 U.S. at 193 n. 12, 96 S.Ct. 1375. The Third Circuit stated: We have previously held that the scienter required for securities fraud includes recklessness, and we have adopted the definition of recklessness set forth in Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033 (7th Cir.1977). Accordingly, recklessness includes: [H]ighly unreasonable (conduct), involving not merely simple, or even excusable negligence, but an extreme departure from the standards of ordinary care,... which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it. SEC v. Infinity Group Co., 212 F.3d at 192. No evidence was presented by the SEC during its case in chief regarding Transmittal 1753 although the SEC specifically alleged that “Scrushy authorized a scheme to blame a May 2002 Medicare billing guidance referred to as Transmittal 1753, for reduced future earning....” See Amended Complaint §§ 35-39 (doc. 21). As a matter of fact, when defense counsel first elicited evidence regarding this Transmittal at the presentation of Scrushy’s case, counsel for the SEC objected. H.R. 880, 1045. However, defendant Scrushy, through corporate counsel Horton, presented uncontradicted evidence that Transmittal 1753 and its effect on HealthSouth was a real problem dealt with as expeditiously as possible and not merely a convenient, imaginary means to offset fictitious profits. Moreover, the court finds that the publication of Transmittal 1753 in May of 2002, three days after defendant Scrushy’s options pursuant to the 1991 Stock Option plan expired, could not have been known to defendant Scrushy in 1992 or 1993 when the Options were granted, some ten years prior to the sale at issue here. Obviously, defendant Scrushy could not have been aware of the existence of Transmittal 1753 in 1992 and 1993, since it did not exist then, nor should he have been expected to intuit that it would be promulgated by CMS some ten years later. The court finds that, in addition to lack of knowledge of the alleged insider information, it is a defense to an allegation of violation of Section 10b and Rule 10b5-1, if the person making the purchase or sale demonstrates that the purchase or sale that occurred was made pursuant to a plan. See 17 CFR § 240.10b5-l(c)(l)(C). It is uncontradicted that defendant Scrushy exercised his option on May 14, 2002, pursuant to the Stock Option Plan of 1991. Defendant’s Exhibit 33C. The Executive Loan With respect to the retirement of Scrushy’s executive loan, the court notes that at the time such loan was made in 1999 it was entirely legal. The Sarbanes-Oxley Act was enacted three years later in response to the Enron Scandal. See H.R.Rep. No.l08-63(I). The retirement of this loan seems entirely reasonable in response to the promulgation of the Act and the public debate that preceeded it. As discussed above, corporate counsel recommended that the loan be retired, as it allowed HealthSouth to acquire over two million shares of its own stock without any cash outlay, reduced the depressive effect which would have resulted from Scrushy selling his shares for cash on the open market and removed the stigma resulting from an executive loan, albeit one grandfathered in by the Act. Additionally, the undisputed evidence is that no one, not even CMS, who drafted the- Transmittal, nor Blue Cross Blue Shield, knew the effect of Transmittal 1753 until August 15, 2002. Even aft