Securities and Exchange Commission v. First City Financial Corporation, Ltd.

prerequi usual all the find stop to need EXCHANGE AND they are when relief SECURITIES equitable sites from jurisdiction COMMISSION their “protect acting to carry ability to their impairs which conduct Martin- In re III functions.” Article out FINANCIAL FIRST CITY Cir.1984). 1254, 1261 F.2d Trigona, 737 LTD., CORPORATION, et equity in a court power undoubted The al., Appellants. the court “flooding from litigant enjoin a No. 88-5232. inter meritless, claims” fanciful with expeditious orderly and “the fering with Appeals, Court States United v. United Urban justice,” administration Circuit. Columbia District of (D.C. Nations, 19, 1989. Sept. Argued case, how to this Cir.1985), not relevant is 1, 1989. Dec. Decided anything add did not Stena ever. Ber its it took when burden court’s district Bermuda. claims law muda Con- nor Sea court district Neither legal any has identified appeal

tainers anti- sustain canwe upon which basis court The district injunction. offer tender power countervail equitable had no

thus anti- court’s Bermuda effect offense if the even injunction, offer tender perceived, the court authority to its injunction foreign inequity upon Sea Contain- view, impose may, in its weAs imagined. than more real ers injunc- court staying said when ‘fairness’ “[njotions appeal, pending

tion deci- judicial bases legal replace cannot

sions.”

III. Conclusion reasons, foregoing For for an motion denying Stena’s order enjoining affirmed, order is injunction is bid takeover pursuing from Stena restraining or- temporary reversed, remanded case vacated.

der is proceedings.

further ordered.

So Judge:

SILBERMAN, Circuit Exchange the Securities 13(d) of Section 78m(d), requires 1934, U.S.C. § Act of indirectly directly or has any person who more ownership of the beneficial obtained equity any registered percent than certain days within security to disclose exchanges on issuer, the the information trades, Secu and the security the which (“SEC”).1 Exchange Commission and rities Fi City First appellants, charged The SEC (“First and City”) Ltd. Corporation, nancial evading deliberately Belzberg, with Marc regula accompanying 13(d) and takeover attempted hostile in their tions filing (“Ashland”) by Company Oil Ashland the after statement disclosure required the concluded The period. district day statute; it had violated appellants further violations them from enjoined then dis them to 13(d) ordered and of section the violation. derived from profits all gorge Corp., et Financial City v. First See SEC thinkWe (D.D.C.1988). al. findings were court’s injunction and clearly erroneous lawful were orders disgorgement City, for Liman, York New L. Arthur viola appellants’ for remedies appropriate appellants. affirm. We therefore tions. S.E.C., whom Gonson, Sol., with Paul Counsel, H. Goelzer, Jacob Gen. L. Daniel Counsel, Washing- I. Stillman, Gen. Associate Asst. Gen. Summergrad, D.C., ton, Eric its contention is based case SEC’s S.E.C., Franco, Atty., Counsel, Joseph A. Belzberg, a Marc on March brief, appellee. telephoned City, of First vice-president Execu- Chief Greenberg, the (“Ace”) Alan GINSBURG, and EDWARDS, Before Stearns, Wall large of Bear tive Officer SILBERMAN, Judges. Circuit Green- firm, asked brokerage Street of Ashland buy substantial berg to by filed the Court Opinion for claim City’s account. First Judge SILBERMAN. Circuit Belzberg: Greenberg “misunderstood” to recommend intended the latter by filed Circuit Concurring statement ac- its own buy Ashland Stearns Bear GINSBURG, Circuit in which Judge count. joins. Judge EDWARDS traded, security is exchange where the pertinent provides Act of Section Commission, con- a statement with file taining part: information, and following ... directly who, or acquiring after Any person information, Commis- as the any eq- ownership additional such indirectly beneficial necessary appro- or indirectly may prescribe ... directly or security ... sion uity protec- per centum or for the public interest than priate of more owner beneficial shall, days after such ten within such class of investors. tion security 78m(d)(l). of the to the issuer acquisition, send § U.S.C. office, to each ... principal executive at its corpo- First is a diversified Canadian at Bear Stearns. enjoyed and controlled ration founded longstanding relationship business with in, Belzberg family engaged among Belzberg. and Samuel Addition- things, investing other publicly-trad- purchases al approximately corporations. ed securities of United States through shares of Ashland stock Green- father, Belzberg, Samuel Marc’s is the berg February pushed between 26 and 28 Chairman and Chief Executive Officer of City’s holdings shares, to 1.4 million company. Samuel and his just percent over 4.9 of all Ashland two brothers own at least 70 stock. City. stock of First Marc Belzberg During period, this City employed managed company’s fifteen-person commonly accepted several measures to City subsidiary. New York The New York secrecy maintain purchases, of its since apparently potential office evaluated in- public knowledge City that First was ac- parent City. for the vestments First quiring large a stake Ashland would 3, 1986, February On a New York stock- likely up price drive of the stock. For broker, Alan, Alan D. wrote a letter to instance, City bought First the Ashland Belzberg describing Samuel Ashland as a stock through nominee accounts2 estab- opportunity” “sensational business Katz-Goldring lished at specifically for the stating that “the timing circumstances and purchases. Ashland Confirmations of the hardly could be better for the ‘Sam purchases stock were mailed under the ” Belzberg (emphasis in original). Effect.’ nominee name to the home of Robi Blumen- In later, a second letter sent days several stein, an officer in First New York presented Belzberg Alan Samuel with addi- subsidiary. Ashland, tional financial information on in- Friday, February On City First re- cluding break-up valuation. After Marc ceived a report favorable from Pace Con- Belzberg copies received of this informa- sultants, consulting a Texas firm hired to tion, he instructed analysts two financial petroleum-related assess Ashland’s busi- begin the New York office to study nesses. Pace segments valued these of component Ashland and its divisions. Arm- Ashland at following $726 million. The ed with their favorable preliminary analy- Monday, on March Pace revised its esti- sis, February 11 Marc and Samuel upward mate million. $844 The next Belzberg purchased shares of Ash- day, on Belzberg March Marc telephoned land City using stock for First Goldman Greenberg engaged him in a short Sachs, large another Wall Street invest- conversation that would centerpiece be the banking ment Throughout house. litigation. of this deposition,3 At his Green- month, City First also steadily acquired berg described the conversation in the fol- large blocks of Ashland stock through lowing manner: Katz-Goldring, Alan’s smaller brokerage By firm. February First Belzberg] had accu- called me and said [Marc some- shares, mulated more than 1.3 million ap- thing like, to the effect something that — proximately percent 4.8 of Ashland’s total “It wouldn’t be a you bought bad idea if outstanding time, stock. Around the here,” same Ashland Oil something or like Belzberg Mare discontinued purchasing that. And I took that to mean that we through Ashland stock Katz-Goldring and going put to do another and call began acquiring through Greenberg shares arrangement that we had done in the by 2. A nominee account is created an institu- than the Name Owner Such of Beneficial intermediary reg- tional investor or financial (Comm.Print 1976). Securities at 47-48 First by ister securities held them or their custom- City routinely pur- used nominee accounts in ers who are the beneficial owners. Nominee chasing large blocks of securities. identity accounts can “mask the of the benefi- cial public.” owner from the issuer and the Greenberg was never called as a witness at Commission, Exchange Securities and Final Re- Greenberg's trial. All testimony references to port Recording Ownership Practice depositions. relate to his two Securities in the Records the Issuer in Other Greenberg accumulated had that his im- father under absolutely I was past_ “First that of Ashland I a block risk at their buying I was pression Belzberg Samuel acquire quickly.” could call.4 put and a to do going was prior knowl- had no that he testified later Marc interpreted Greenberg While Greenberg purchases.5 edge of purchase an order Belzberg’s call morn- next York the Returning to New City, Marc of First on behalf stock Ashland Green- called Belzberg Marc ing, he intended March claimed that Belzberg later call put and arranged written a Greenberg buy berg and recommend Bear 330,700 shares Stearns, agreement for is, Bear himself, stock During accumulated. Stearns misunder- apparently men- did not conversation, Belzberg Marc Immediately after Belzberg. stood days Greenberg. Several price to 20,500 tion Greenberg purchased call, phone the written received later, Mare purchased If shares. Ashland price,” “strike agreement with pushed have those shares City, City, charging First was Bear price Stearns holdings above City’s Ashland well This was price per share. of $43.96 day beginning triggered $45.37; price then market below 13(d). of section period filing and call put thus, the total obliged been event, City would Marc $500,000 market. below almost statement 13D disclosure a Schedule to file surprise no expressed apparently Belzberg SEC. with the on March almost charging was that Bear Stearns 14, Greenberg pur- 4 and March Between val- market less than million dollars half a of Ash- 330,700shares an additional chased that believed that he testified later ue. He than costing more City First land stock for a “Santa acting as was Bear Stearns Marc Greenberg called million. $14 him giving Greenberg was and that Claus” days those ten during Belzberg periodically business gain more to “a bit break” securities, including Ash- various to discuss future. City in the from First Greenberg conversations, In these land. respon- Blumenstein, officer the increasing When Belzberg the Marc reported to compliance City’s ensuring First for Greenberg had sible of Ashland number laws, the noticed securities the federal Greenberg, with to According accumulated. Marc immediately met with he price, by say- strike reports to these replied Belzberg “ the recognized that Belzberg. Blumenstein something to ‘Fine, or keep going,’ ing, only the reflected price of the computation characterized Greenberg also effect.” that stock acquiring the Bear Stearns cost to ap- “grunt[ing]” response Belzberg’s writ- the before period week the two deny over squarely did Belzberg provingly. and commis- interest (plus agreement he, ten that testified testimony; he that First that inference creating an sion), thus cheap.” “uh-huh, it’s I think Belzberg, said securi- owner City the beneficial weekend, was Marc the March Over Blumenstein After 17. March ties before in and uncles father with his Belzberg met Belzberg, two the problem the outlined Sun- On Ashland. Angeles to discuss Los speakerphone. Greenberg on men called Belzberg decided 16, Samuel day, March Mr. testified, informed “I Belzberg later Ash- buy continue City should First that that [during conversation] Greenberg advised Belzberg then Marc stock. land result, than rather the investor price. As a same purchase stock Large sometimes investors 4. buy- risks the market all of these broker bears agreements.” Under the through "put call and agreements call put and ing Stearns The as Bear the stock. such agreements, a broker agree- response subject apparently to the developed purchase the stock The requirements of the account. place in its own it notification pre-merger ment agreement pur- to “call” investor entitles Act. Hart-Scott-Rodino agreed for an the broker from the shares chase price, the cost to upon agreed an upon period at entry, diary 15 desk Belzberg’s March Samuel commis- a small plus interest broker = comment, "Ashland contained right time, has the broker same At sion. Greenberg.” Ace at the investor to the the shares “put” or sell the letter agreement] written million, was [the in- resulting $134.1 in a $15.4 million correct, that I didn’t care price what profit City. return,. First City the stock bought was that he himself, I agreed purchase not to any Ashland shares didn’t day care what he made trades for the years. next 10 himself, that I buying stock from Around the time of the buy-back agree- him today.” as of Belzberg then testified ment, began the SEC an inquiry informal Greenberg said, right, the “[Y]ou’re into the timeliness City’s of First Schedule wrong, letter's I didn't read it before it 13D filing requested that both First out, went throw it out and I you will send a City and Bear provide Stearns a detailed copy.” corrected Greenberg, however, tes- chronology of events describing their con- tified Belzberg referred to an tacts with each other relating to the Ash- error in the calculation of interest and not purchases. land deposing After Greenberg to the date on which acquired and Marc Belzberg, the SEC filed a civil stock. At the end of conversation, complaint against Marc Belzberg and First Belzberg suggested pay he per $44.00 City, alleging they per- crossed the 5 share, per 4 cents higher share than the cent threshold on March 4 but filed the original price strike $1.36, but still or a required disclosure statement on March total nearly $450,000, below market days past twelve the section deadline. price. trial, At pick- admitted to The district court found ing Marc figure $44 “out of the air” and that Belzberg and First City he entered into an “did not want the was paying [he] put informal agreement and call on relate to [Greenberg’s] cost.” Between 4 and then deliberately March 17 violated the day Marc Belzberg's in- filing requirement structions, 13(d). bought 890,- another court, Ashland opinion, shares on extensive behalf of First relied using primarily on put several call agreements. acknowledged ulti- mate purpose to Ashland, take over Green- purchases, these After Samuel Belzberg berg’s understanding of his March 4 tele- sent a letter to Ashland’s management, in- phone conversation with Marc Belzberg, forming them of City’s First holdings in the subsequent conversations between their and proposing stock a friendly take- Belzberg and Greenberg, and suspi- over company. of the rejected Ashland price cious of the March 17 agree- written offer, and on morning of March 25 the ment. The court discounted Marc company press issued a release disclosing Belzberg’s “misunderstanding” explanation City First held between 8 per- and 9 as “self-serving, inconsistent with his cent later of Ashland’s stock. Almost immedi- actions and squarpng] ately, objec- with the price [not] of Ashland stock rose 10 tive evidence.” percent 688 F.Supp. to at $52.25. The 712. day, next on March 26, Belzberg, put to it bluntly, First filed the was not credit- Schedule 13D disclo- ed. The court sure required statement also refused by 13(d). to consider Greenberg’s The later testimony statement indicated that there might have percent accumulated 9 been an “honest Ashland misunder- stock standing” intended to since Greenberg launch a tender offer for reached that the remaining shares at conclusion based per Belzberg’s $60 on share. sug- The price gestions market Ashland stock then statements. See id. at 720. $55, rose peaking at per $55.75 share the The district court permanently enjoined day. next appellants from future violations of section At 13(d) Ashland’s urging, the Kentucky legis- they because violated the statute de- passed lature legislation hampering liberately, “remorse,” showed no and were City’s ability to financing obtain engaged in a presented business which op- tender offer. thereafter, Soon portunities First City to violate the statute abandoned the attempted offer. tender future. On See id. at 725-26. The court also 31, March agreed Ashland buy appellants back ordered disgorge approxi- per share, shares $51 mately or million, $2.7 representing prof- their

1221 strip the 52(a). Appellants would district stock Ashland its on the clearly that the deference erro- The court of the 25. 14 and acquired between requires. of review able appellants were neous standard reasoned that artificially allegedly low exhibited an bias judge shares at purchase these district the sec- to make we should appellants, to their failure therefore against due id. 13(d) finding on March See and re- disclosure tion court’s examine appeal the at 726-28. simply erroneous—that think it if we verse unsupported as finding of violation court’s failed is, the SEC if conclude that we judicial product a the evidence by preponder- proving carry its burden dis- They further contend bias. agreement, the evidence ance of ordering discretion trict court abused understanding existed or arrangement remedies. disgorgement injunction and said, March 4. We shown we if were to be

even bias than factfinding rather for new remand H. record. review of the in de novo engage the sec comply with must A shareholder v. Iron Workers Berger See Reinforced beneficially if he disclosure law tion 1395, 1407 & 201, 843 F.2d Local Rodmen equi company’s public of a owns curiam), (D.C.Cir.) reh’ggranted (per n. 3 Rule Under Commission ty securities. (D.C.Cir. F.2d 619 grounds, 852 on other in possesses 13d-3(a), person whenever a — U.S.-, 109 S.Ct. 1988), denied, cert. any through voting power or vestment (1989); 3155, L.Ed.2d Southern enjoys understanding, he agreement T, v. & Co. AT Communications Pacific 13d-3 is craft ownership.6 Rule beneficial 980, (D.C.Cir.1984),cert. de 740 F.2d pur sweep within its enough to broadly ed nied, 470 U.S. informal, that con arrangements oral view (1985). Alternatively, appel L.Ed.2d 380 voting or investment person upon fer taint if bias did not that even lants claim Indus., Inc., 587 Savoy v. power. See SEC find factfindings, the district court’s (D.C.Cir.1978), de cert. overturned, clearly ings still be must 1227, 59 nied, S.Ct. U.S. erroneous, the weakness because of (1979); see also Wellman L.Ed.2d 462 Cir.1982),SEC’s case. Dickinson, 1069, 103 denied, 460 U.S. S.Ct. rt. ce 1522, (1983). Appellants 75 L.Ed.2d A. agreement, put call a and concede that informal, primari charge if beneficial own is drawn even constitutes The of bias subject stock the investor of the court’s ership to the district ly footnotes in from agreement. which, together, appellants to the taken opinion unjustifiably judge indicate that the argue, court turned the district The before case disreputa in a Belzbergs were thought the call put the and question whether view “populist” his and that ble business City and Bear agreement between First foot findings. In one his colored unfairly 4, as on March entered into Stearns was note, newspaper articles cites the court claims, as not until March 17 or the SEC evidence) the describe (not which placed issue, course, is City argues. That corporate raiders.” Belzbergs as “active (or and of mixed fact of fact question n. 1. another F.Supp. at 708 See 688 law), answer which the district court’s York to a footnote, court New the refers appeal overturned on may not be normally Belzbergs lists the article which magazine clearly erroneous. See unless Fed.R.Civ.P. (1) the voting power with includes 13d-3(a) reads: Rule of, voting such power vote or to direct 13(g) purposes of Sections For the (2) power which security; investment and/or security of a owner Act a beneficial dispose, or to direct power who, includes directly any person or indirect- includes of, security. contract, disposition such arrangement, any ly, through under- 240.13d-3(a). relationship § or standing, or otherwise has capable refining id. at 717 n. 12.7 his “greenmailers.” See views ... and main- as footnote, judge, ap- taining completely open third mind to decide In a contend, unjustifiably apply applicable criticized the the facts and law to pellants Belzbergs’ payment extra commission to the facts.” Communi- Southern Pacific T, (D.C. Alan Katz-Goldring, sug- stockbroker v. AT cations & Cir.1984). gesting they paid presume judge to maintain We that a will confidentiality personal given and therefore com- set aside views—which hu- “outrageous manage- always present mitted an abuse in man find nature are —and public corporation ment of a solely and a blatant facts relevant on the evidence fiduciary violation of presented. appellant duties.” See id. at An must therefore 710-11 n. 4. The challenge judge’s “irrevocably SEC did not that a show mind was payments, appellants these did not seek to closed” on the issue before the court. See them, explain id.; Inst., and the district court was see also FTC v. Cement U.S. apparently 683, 701, they 793, 803, thus unaware that could 92 L.Ed. 1010 (1948); Appel- Haldeman, been normal “finder’s fees.” United States v. suggest lants’ (D.C.Cir.1976)(en banc) briefs also that the (per district F.2d opinion gratuitously curiam). court’s referred derisively Belzbergs’ to the wealth when Appellants suggest argument that on actually reference was to the fact that summary judgment the judge just indicated Belzbergs “wealthy, knowledge- are degree of indifference to the relevant able, and astute businessmen.” 688 facts, and therefore a closed mind on the Finally, appellants at 708. believe key issues, when he commented from the judge expressed disap- unwarranted concerning bench million $15 proval of techniques normal business such profit on buy-back agreement. the Ashland as the use preserve of nominee accounts to judge remarked, “Isn’t there some- secrecy, though even explicitly thing about that shocks?” As with [that] “recognizes said it defendants’ claim for any good judge recognizes who the limita- keep the need to dealings their business tions of his or her own observation as discreet public and from view.” policy, however, matters of judge

F.Supp. at 710 n. 3. quickly reminded counsel and himself that think, most, We very one, at the these foot- “what shocks applies when one suggest "greenmail” 7. The classic wrong pew, situation involves an have been in the right but he had the purchases large investor who a block of a tar- church. get's primary goal securities the with of coerc- judge ing target 9.The stated to the repurchasing the counsel for Marc into the stock from Loss, Belzberg: premium. the investor at a See L. Funda- Gitter, (1988). point Mr. I am inclined at this Securities Regulation to mentals of your application summary judg- disallow were, Katz-Goldring Alan and as the district ment. footnote, judge compensated observed may in that great as I think that there be a deal of merit they advanced, if purchases had you done all the of Ashland in what have but when I look matter, that subsequently by were made something Bear Stearns— at this it is that I can hear which Belzberg merits, and, is a speedily further indication that rather ing on the after hear- switched to complete February Bear Stearns on 26 to in detail the facts and the law as advanced sides, Katz-Goldring plan the Alan by long try both it won’t take that take merits, over judge may Ashland. The district prepared well this case on the and I am of of one intention subjective on the pend decide the he would that parties the ised Con- Bros. Elec. Brown parties. See the personal his apart from merits case Corp., tractors, v. Beam Constr. Inc. absolutely no indication seeWe views. 350, 361 N.E.2d 397, 393 N.Y.S.2d N.Y.2d Moreover, promise. betrayed that he that FarnswoRth, A. (1977); generally see opin- carefully crafted examining his after (1982).10 If there 3.6 at § only the few Contracts exception of (with the ion there a actual contract were an record, fortiori do not we footnotes) as the as well Assuming ar- “understanding.” was an have decid- judge could how the see state the appellants that guendo, differently he any factual issue ed the government correctly, we think issue vigorous market a that fervently believed Belzberg that powerful case presented a welfare enhanc- control was corporate agree- put-call into a to enter did intend “green- any fault to is there ing and if 4 and March Greenberg on ment with in the payment, not in the it lies mail” sought to circumvent purposely therefore of allegations Indeed, appellants’ receipt. 13(d)’s requirements. disclosure barely colorable and in are this case bias Belzberg’s the evidence That some of distorting constructed have been it no less makes intent is circumstantial snippets of out of context quoting seem to forceful. probative or opinion. judge’s comments only competent incorrectly suggest be di- Belzberg’s intent would evidence B. intent. revealing that rect statements court’s fact- the district turn to nowWe remembered, less than First, it will against clear- them findings to measure call, First March after two weeks test, standard. Under ly erroneous takeover a full scale on embarked of the evi- court’s account “[i]f Ashland, actions and all of their attempt of record light of the plausible is dence step. foreshadow seem to beforehand uphold must entirety,” we its viewed City’s First very beginning From the weighed if we would factfinding even ap- Ashland, company was interest v. Bes- differently. Anderson evidence tar- potential takeover eyed as a parently 573-74, 105 S.Ct. City, U.S. semer an investment. just get than rather (1985). 1504, 1511-12, L.Ed.2d 518 breakup value analysts studied disputed Thus, version SEC’s businesses, component of Ashland by the district essentially adopted events, im- under consultants and Pace in order not “plausible” court, only be need evaluating the City was pression that And inso- id. clearly erroneous. See to be February target. On company as oil finding predicat- is court’s the lower as far business its Ashland City switched credibility determination —here ed on a Stearns, Katz-Goldring to Bear from is Belzberg even disbelief court’s —it put capital accommodated larger whose scrutiny. See from our further insulated large enable arrangements and call at 1512. at id. and which accumulations pre-merger of First the size unaware presumably that the SEC’s clear to us not at all It is Then claim, in Ashland stock. is City’s position case, appellants in this burden directly buy Greenberg to asked intent” Belzberg’s “subjective prove of Ashland shares agreement approximately with into an 4 to enter Feb- between purchases Those City. purchased First latter whereby the Stearns Bear City to 4.9 brought First ruary 26 contract City. Whether for First line to the 5 closer percent, even de- thought normally is formed case, and my views about the now, from get it infer any I will and give you date a trial asked. I have questions that you of, can chart disposed and then each get appel- and your path the fifth floor to 13d-3(a) benefi- clearly indicates 10. Rule ruling it. beyond late on expansively ownership must be read cial case I feel the understanding, to idea as how rela- "any have some I to include "contracts” tionship decided, necessarily you don’t and be should or otherwise." stage put-call agree- aggregate That large and set the for a Stearns for the stock. $450,000 certainly It seems more than a March price ment.11 was below market on then, strange, having (but little that after di- price the market reflects buy City’s rected Bear to for First Stearns purchased the dates that Bear Stearns 53,000 Ashland, account 17) stock from March to March and sure- later, Belzberg, only would call a week ly parties suggests by itself that both un- Greenberg only suggest to that Bear previously derstood that Bear Stearns had buy Stearns Ashland stock for itself. purchased City’s agent as First the stock only and therefore was entitled to its nor- light of the two men’s discussion relat- mal costs and when transfer- commission ing purchase to the of Hartmarx stock ring City. the stock to First earlier, City’s three months decision only to turn to Bear Stearns after the testimony Even had there been no at all percent Belzbergs acquired almost 5 participant from either on the March tele- strengthens Ashland the inference that on conversation, phone we think the SEC’s Belzberg March 4 Marc intended Bear other evidence would have made out a sub- purchase Stearns to further stock for First prima partici- stantial case. But the facie had, City’s Belzberg benefit. at that earli- pants during testified as to what was said time, Greenberg er called and asked Bear call, Greenberg’s supports version buy corporation Stearns to Hartmarx stock sure, Greenberg’s the SEC’s case. To be through put on First behalf and testimony Belzberg something said —that agreement. Greenberg call was aware at like, you “It wouldn’t be a bad if idea City just the time that First held under 5 bought Ashland Oil here”—sounds some- stock, percent of Hartmarx’s total and he imprecise, Greenberg what “I but also said Belzberg proposed put warned that their absolutely impression was under I was agreement might call cross section buying going at their I risk and was to do a 13(d) lawyers line. After his confirmed the put and call.” It is more than a little 13(d) problem, Belzberg called imagine Greenberg difficult to how could Greenberg explicitly carefully rec- possibly impres- have received such a clear Greenberg buy ommended that stock for Belzberg sion unless conveyed message Bear Stearns’ own account. The Hartmarx Greenberg thought all, he received. After experience taught Belzberg only that a Greenberg hardly was a novice in the busi- put arrangement qualified and call as bene- expected ness and would not be immediate- ownership ficial under section but ly buy (worth shares of stock only if also that he intended to “recom- approximately $800,000)and to continue to Greenberg, mend” stock to he needed to purchase enormous amounts of stock for a clarify ambiguity. that instruction to avoid client any without direction. Belzberg Greenberg also understood that might question legality of his trades if A little over a month after the (and might charged the latter knew with call, phone 4March Bear Stearns submitted knowing?) City that First was close to the 5 chronology response of events in to the percent explain why line. This could Bear request. entry SEC’s The March 4 corrob brought City Stearns was not in until First Greenberg's orates testimony puts but it a already percent on the 5 threshold. sharply: bit more

Perhaps important Greenberg Alan piece phone the most ... received a call of cir- tending Belzberg cumstantial evidence from Marc show that ... which Mr. Belzberg Bear, Greenberg had asked begin asked that Steams buy put-call stock for First accumulating under a Ashland stock. Mr. agreement City paid mean, is the Bear understood this to as in Belzberg argued 11. Marc that he lacked the au- Ashland was made and could be made thority father, acquisition Belzberg, to commit First to an Sam his over the March 15-16 acquire percent agree even to more than 5 of Ash- weekend. We with the district court that him, According intra-family land’s stock. argument the decision to this ultra-vires is not con- beyond move attempt acquire vincing. See 688 at 719.

1225 They for weaknesses. probe by ositions purchased other securities the case of challenge Hyman’s prepa David also could Bear, which in Stearns during Hyman’s chronology the Bear, ration of Stearns interest, as that soon Thus, primary the rationale deposition. position, we a sizable had accumulated inability to cross-ex hearsay rule—the call the put and a written enter into would the ve declarant on the out-of-court (emphasis amine City, agreement with par at least racity of his statement —was added). v. here. United States tially See offset object to the admis- vigorously Appellants (E.D.N.Y.1976), 554, Iaconetti, 406 558-60 hearsay since it chronology as the sion of Cir.1976); F.2d 574 'd, 540 aff declara- Greenberg’s out-of-court on relies Scrima, 819 F.2d v. States see also United chro- admitted the The district tions. Cir.1987); 996, (11th J. 1001 Weinstein & exception to nology under the “residual” Berger, M. Evidence Weinstein’s not is a statement hearsay rule. When the (1988). Further 803-375 803(24)[01]at § general from the exempted specifically the chronolo more, any statements in false 803(24) the Rule allows hearsay prohibition, prosecution gy subject to criminal would be if it is invest- the statement introduction 1001. United States under See 18 U.S.C. § guaran- “equivalent circumstantial ed with Cir.) 531, (5th White, F.2d v. 611 trustworthiness,” probative is more tees of statements (concluding that out-of-court proponent can evidence than other threat of trustworthy if made under can be serves the inter- procure, and reasonably cert, statements), false de prosecution for leg- recognize that the justice. ests of We 2978, 64 nied, U.S. S.Ct. exception this indicates history of islative (1980).12 the Finally, before L.Ed.2d 849 sparingly. See applied it should be that SEC, Green- chronology sent to was Kim, v. States United document berg apparently reviewed the acknowledge (D.C.Cir.1979). we also But represent chronology thus accuracy. enjoys a trial court discretion the broad contemporaneous account ed most assessing probity and trustworthiness 4 conversation.13 the March Reese, v. United States of documents. See district court (D.C.Cir.1977). then We conclude n. 18 F.2d admitting into evi- error in exception de- did commit hearsay the residual Since chronology under Bear Stearns dence the judgment of relia- heavily upon a so pends But even hearsay exception. the residual particularly typically would be bility, we admit- chronology improperly been had the trial court’s determina- deferential merely cumula- ted, 803(24). See, the statements e.g., Bal Rule under tions of Green- corroborating evidence Gables, Getz, tive and v. Inc. Coral ogh’s Belzberg’s intent understanding of berg’s (11th Cir.1986); v. 1356, 1358 F.2d Huff there- phone (7th call during the Corp., 609 Motor White See be harmless error. fore would Cir.1979). ample opportuni- Appellants had Fed.R. (“No the admission error either Greenberg his Civ.P. about ty to cross-examine ground for ... is of evidence dep- or exclusion during his two statements out-of-court argued, district court and the chronology The SEC also 13. us that warn merely Greenberg chronology "a reflects untrustworthy accepted, inherently because agent con- party’s have been anxious or servant and Bear Stearns statement cerning Stearns suggesting agency SEC that Bear scope avoid within the matter principal which purchasing as a stock during the existence employment, made or 13(d) group part might thought of a section 801(d)(2)(D). relationship.” Fed.R.Evid. City. which along But the at with First relationship "agency” of an existence Since the virtually City makes it sold to Bear Stearns very question at 4-14 is between March anyone Bear impossible to claim that argu- issue, bootstrap something of a this seems acting principal. thought It as a it was Stearns may Torcomian, See, e.g., Amoco Oil Co. ment. had an Stearns incentive well be that Bear (3d Cir.1983). How- 1105 n. 15 722 F.2d ever, suspected suggest knew not to decide issue. need not we Belzberg’s plan to circumvent March 4 of 13(d), ran incentive but Belzberg's favor. granting pattern a new trial ... unless refusal to “there was no consistent appears take such action to the court incon put/call time oral interval between an justice.”); Cough sistent with substantial agreement, preparation and execution Co., Capitol lin v. Cement agreement, dispatch and its to First Cir.1978). (5th City.” (emphasis at 719 add- ed). words, Greenberg’s put-call In other Nevertheless, appellants argue that dealings “informal,” City with First Belzberg could not have intended to direct it, put apparently as SEC because Greenberg purchase to Ashland stock for Greenberg legal felt no need for formal account on March because protection. price quanti there was no discussion of and fact, ty. Greenberg In testified that government’s affirmative case Belzberg price “must have” mentioned a sum, against City, quite was event, quantity. any parties if the not, claim, strong, appellants predi- as put-call agreement, Belzberg’s wished a in cated on unwarranted inferences and weak term, price necessary tended was not a circumstantial Belzberg evidence. Marc arrange it was understood that under that gave testified in his own behalf and a com- buy ment Bear at Stearns would market peting ap- account of the events and their charge City only its costs and propriate interpretation. The district moreover, Greenberg, normal commission. judge, indicated, as we have did credit kept telephone in close contact with testimony, and we find unassailable the Belzberg, advising quantity him as to the Belzberg’s district court’s assessment of Greenberg purchasing. of shares was implausible. account as testified, example, Greenberg that he Belzberg’s At the threshold of version of 150,000 would tell “I now own ” the events is his claim that on March 4 he Or, [Belzberg say ‘Fine.’ at would] had Greenberg “recommended” to times, “Fine, Belzberg responded other buy Bear Stearns Ashland stock for Bear keep going” something or to that effect. account, Stearns’ own because it subse- Belzberg had and at ap continuous least if quently proximate turned out that First information as Bear wished to Stearns’ Ashland, Ashland, purchases acquire the takeover would both easily accomplished amount. more if Ashland stock “loosely” by (short- were held arbitrageurs Appellants’ last attack on the SEC’s evi- speculators term more inclined to cash in “dog dence ais variant of the that doesn’t quick profit) on a rather than remain in According appellants, parties bark.” appellants what refer “forgotten to as safe- put-call agree- could not have reached a deposit explanation This box[es].” customary ment March because the Belzberg’s call to Greenberg is unconvinc- “paper accompanies trail” that those trans- First, ing. Bear Stearns inis the business actions was Bear typically absent. Stearns (for of recommending stocks to customers slips, would send confirmation as well as a compensated which it is through trading agreement, formal letter soon after a trade commissions), not vice versa.14 As we not- require and would its customers to send ed, only a week before the March 4 conver- “margin” deposit days within seven sation, Greenberg, trader, performing as a agreement. Greenberg explained that case, purchased about this Ashland shares accumulating he was Second, directly City. for First although Ashland shares until he had a sizable block it intended, point may at which he as he did on well be true that a tender offer after put-call to formalize agree- is launched the acquiring company would found, ment. And as the district court possible wish as much stock as gath- to be Apart episode, Belzberg from the Hartmarx Stearns. After First aborted its takeover Greenberg Hartmarx, attempt against never recommended a stock for Greenberg sold what- buy for Bear Stearns' own account. argues ever Hartmarx stock he held. The SEC bought (the testified that episode he Hartmarx stock really "dry- that this Hartmarx record) amount is undisclosed in the for Bear run” for the section violation in this case. confidentiality), pre-tender offer typically buy for tance arbitrageurs, who ered pains keep its interest in Ashland tendering, had not took we very purpose of thing Belzberg very secret. The last theory that it would heard the previously light in those efforts would be to tout start their do helpful arbitrageurs to be prospective speculator as a company pub- Ashland to a acquiring buying before Indeed, purpose if his good investment.15 signals Appellants’ brief licly its intention. Ashland, arbitrageurs buy to induce theory 1 M. was support for this novel cites as more Lipton presumably he would have contacted Steinberger, Takeovers & & E. Stearns; just Bear he would have (1987) than at 1-51 & 1-51 § 1.07[2] Freezeouts possible in a openly disclosed his interest and 1 A. Fleischer, De- Tender Offers: Planning takeover of Ashland to all of Wall Street. (Supp. fenses, Response, 1985). But the former citation discusses Moving elements in on to other arbitrageurs general- only the activities of by his in- Belzberg’s story, we are struck con- suggests that the ly, while the latter congruous explanation for his reaction to wisdom, offers are that tender ventional $450,000 price off the discount market prior if to the tender insti- more successful if, Greenberg him offered on March large hold of stock tutional investors blocks put-call actuality, in there had been no Nei- target company, in is outmoded. agreement Belzberg on March 4. testified appellants’ directly author addresses ther surprised by price since that he was not it would be useful proposition that dubious acting like thought he Bear Stearns was If arbi- give arbitrageurs a head start. by offering of a Claus” “a bit “Santa buy induced to trageurs were to be gain more First business. break” before signal acquirer obliged to or announce is of a break indeed! And unsolicited at Bit offer, resulting trading would tender a Virginia, apologies to we that. With thereby up prematurely, price move the Santa Clauses thought that Wall Street acquirer to raise pressure on the putting during sidewalk confined to the price. Nor do anticipated tender offer Greenberg time. testified that Christmas (if today’s market it was think that in we million dollar break gave if he clients a half case) publicly trad- much stock ever for which Bear Stearns bore on stock risk, “go de- a forgotten held in safe broke within companies is he would ed market added, Greenberg quite convinc- price inelastic. posit and is therefore week.” boxes Lipton add, run might does ingly & E. we Steinberger, not] 1 M. “[he See Take- (1989) probable, More anybody.” at 1-95 risk § 1.09[2] [that] & Freezeouts overs alone, helpful appel- although particularly not in- (noting pension funds not lants, price funds, Belzberg’s explanation compa- is cluding mutual insurance re- investors, 17. It will be modification of March nies, own and other institutional up mere a a large called he moved of the shares of 4<t or more in order to not, the round number $44 share to public corporations). We do how- U.S. price of that the strike rebut the inference ever, perception and under- rely on our own prior put-call a product reject was standing $43.96 of market behavior (if at incredible, a rather thin agreement. That was Belzberg’s explanation disguise which seems inexpensive) with least Belzberg’s is inconsistent account that an all the more obvious only to make City’s own behavior. fact, was, on March reached agreement period it unveiled During the before typi- acting quite plan, City, takeover “misunderstanding” explana- Finally, acquirer, see id. putative a cally for in- late in the SEC suspiciously impor- tion came (emphasizing the at 1-24 § 1.04[2] by anyone are, who has securities Belzbergs part, chase or sale of in the mar- 15. Since the control, "suggestion” a tender corporate nonpublic, such a information about ket for material by knowledgeable might interpreted a inves- sub- anyone or taken if has commenced offer tip, possible as a insider’s tor such as making tender steps of a toward the stantial legal peril. SEC Rule without its own See offer). 14e-3, pur- (prohibiting 240.14e-3 § 17 C.F.R. vestigation. fashioning judge Neither Bear Stearns’ nor the has wide latitude in City’s chronology, remedy, submitted we will not disturb the trial court’s call, sug- month after the March even remedial choice unless there is no reason- gests Greenberg may have misunder- able basis for the decision. See United Co., Belzberg stood on that earlier date. And it States v. W.T. Grant U.S. (indeed quite unlikely incredible) 894, 898, (1953); 97 L.Ed. 1303 Lomb, Inc., after the Hartmarx incident three months SEC Bausch & before, carefully (2d Cir.1977). in- when claim such an imprecise structed as to the risks of com- abuse of discretion here because the SEC a reason- concerning put-call agree- munications did not show “that there [was] 13(d) deadlines, crowding able likelihood of further violations] ments section in Indus., Belzberg would be Savoy SEC v. cavalier about sub- the future.” 587 Instead, ject. misunderstanding expla- 1149, (D.C.Cir.1978) (emphasis F.2d 1168 in clearly post-hoc nation seems rather original) (quoting to be a SEC Commonwealth Sec., Inc., offering designed impact 90, to avoid the of Chem. 574 F.2d 99-100 Greenberg’s Cir.1978)); see also SEC v. Bausch & admissions. The district court, recognizing Lomb, Inc., point, this refused to 565 F.2d at 18. 3, admit into Greenberg’s July evidence Savoy test, Industries Under our affidavit —in which first judge the district should consider whether possibility mentioned the of a “misunder- part defendant’s violation was isolated or standing” product it was the —because pattern, of a whether the violation was Belzberg’s suggestion Greenberg just flagrant and merely deliberate or technical

prior Greenberg’s deposition. See nature, in and whether the defendant’s F.Supp. at 720. judge The district also present opportunities business will to vio presumably ignored Greenberg’s subse- late the law in the future. Savoy See quent deposition testimony to the same ef- Indus., 1168; 587 F.2d at Commonwealth fect. Chem., 100; SEC v. National 574 F.2d at 682, Mktg., Student F.Supp. carefully After examining appellants’ (D.D.C.1978).16 single No factor deter iS lengthy case, briefs and the record in this minative; instead, the district court should then, we conclude the district court’s find- propensity determine the for future viola ing, appellants deliberately violated totality tions based on the of circumstanc 13(d), affirmed, should be and we Youmans, es. See SEC v. turn to the remedies the trial court fash- denied, (6th Cir.), cert. 469 U.S. ioned. (1984); 83 L.Ed.2d 398 SEC Lomb, Inc., v. Bausch & 565 F.2d at 18.17 III. Appellants raise troubling two Appellants challenge injunction points injunction First, about the order. in granted district court explaining injunction unwarranted on the district court the facts of said, this case. Since a district public is also a perception “[T]here 16. The lump- district court misstated the appellants violating test deter from the law in the ing “reasonable likelihood” as a Scott, factor to be F.Supp. future. See SEC v. considered F.Supp. with the others. See 688 at (S.D.N.Y.1983), Cay- sub nom. SEC v. aff’d establish, precedents clearly 724-25. As our Corp., man Islands Reinsurance 734 F.2d 118 however, injunction the trial court must test the (2d Cir.1984). properly reject- The district court solely against the reasonable likelihood stan- publicized ed these factors. The most cases dard. guide The list of factors is egregious often involve the most violations of deciding district courts in whether the test has Similarly, defending the law. the costs of been met. against may directly an SEC action related to complexity vigor Appellants of violation and the argue with the district court should which the negative publicity defense is mounted. considered the Neither factor generated by issuing the SEC's action should dissuade a and the cost of trial court from an defending the likely injunction. suit as factors that would Typically we would injunction. support the ac- recent and been that defendants have under these court to the district remand takeover battles in heated participants tive for reconsideration at F.Supp. circumstances mergers.” 688 unfriendly here, so We do not do injunction. injunction, even Justifying 725.18 independent de- made an senti- we have public because propitiating in terms of part, appropri- injunction is law. matter of ment, as a termination objectionable of future likelihood ate, our reasonable misconstrued i.e. a Second, court the district do not even another ba- exist.20 violations suggesting precedents many offer appel- will deny that their business injunction justifying sis for violate in the future to opportunities SEC v. Sa of remorse.” See “lack lants’ Instead, quar- (D.C.Cir. appellants Indus., laws. securities voy court’s deter- compared primarily with 1978). rel The district deliberately violat- with demeanor” mination that “unrepentant Belzberg’s 13(d). prior discussion— “express[] As our who ed section cases defendants other Belzberg’s tes- appraisal remorse our particularly and vociferous immediate clear, we think make timony at 726.19 errors.” 688 [their] —should as to compounds determination appellate brief district court’s government’s consider, to subject as of mind is not urging Belzberg’s us to state by mistake this remorse, appel- this First challenge. That is lack of serious of further evidence 13(d) no bar to the appellants’ is and violation arguments first section lants’ counsel’s Na- injunction. v. appeal. on an See SEC this case issuance of pursue to willingness Corp., 360 Mktg. defen- require do tional Student securities laws single 284, (D.D.C.1973)(stating that a Heep in to order 299 Uriah to behave like dants if com- injunction an pun- may justify to be They are not violation injunctions. avoid also knowingly); see willfully and vigorously contest mitted they because ished 8, Inc., Lomb, F.2d 565 “lack We think v. & accusations. SEC Bausch government’s Cir.1977) injunctions for (2d (approving defen- where 18 is of remorse” relevant circumstances). or- some single in previously violated acts have dants 198, 202 ders, Koenig, v. see SEC Cir.1972), indicate IY. otherwise (2d law, see by the feel bound they did not disgorgement court directed The district such, Indus., 1168. F.2d at As 587 Savoy challenge this to appellants’ profits, as to indication really only another it is an issue of presents the order aspect of fu- “reasonably likely” that it is whether courts federal impression first —whether in the absence will occur ture violations remedy employ that authority to have the injunction. an 13(d) violations respect to section with this sort appropriate in is it court, then, appeared to whether The district also claim to case. factors inappropriate part on rely in two here, appropriate. We can injunction is proposition, the district supporting this 18. In view, Belzberg’s explanation for my newspaper articles because in the 76 to court referred if the district Belzbergs. implausible so events is about the government appellants, the found court had suggest district to We do not mean 19. appeal. on to reversal been entitled would have Belzberg’s consider judge to was not entitled Columbia, 788 F.2d Bishopp v. District See 781, not an credibility whether or as to relevant con- not that (D.C.Cir.1986). If I were may well what That injunction should issue. deliberately sec- violated appellants fident that it it is not what court meant—but the district merely believing 13(d), opposed to tion said. erroneous, clearly I would was not district court my I, (compare myself injunction. speaking only (grant) affirm not feel free statement), concurring colleagues’ believe this issue because decide We should relies, part, an on judge even unavailable, district when a no if we remanded judge is injunction, granting an impermissible factor any comparative judge other district except appeal in the may not be affirmed it pro- assessing the advantage this court over appeals can the court situation when rare injunction. priety anof independent determination make and should 13(d) they distinguish But seek disgorged is excessive. amount ordered transgression of as a “technical” violations affirm the reject arguments both We really do not cause reporting rules that order on these issues as court’s contrast, argue, insider they injury. well. theory is tantamount trading under modern Appellants, by claiming that Con theft; inflicted on the injury an actual is explicitly authorize a mone gress did not confi- entitled to individual or institution violations, 13(d) remedy tary for section 13(d), dentiality. is Section of the court’s au misapprehend the source regulation Act pivot of the entire Williams equitable thority. Disgorgement is an rem sure, may some offers.21 To be of tender deprive wrongdoer of his edy designed to gener- statute the usefulness of that doubt deter others from unjust enrichment and to specif- ally requirement or the section violating the securities laws. See SEC v. ically, hardly up judiciary it to the but (2d Cir.1987), Tome, 1086, F.2d ap- second-guess Congress’ the wisdom of - U.S. -, denied, 108 S.Ct. cert. it proach regulating takeovers. Suffice (1988); Blavin, 100 L.Ed.2d 213 SEC 13(d) a us to note that section is crucial Cir.1985); (6th v. Texas F.2d SEC scheme, requirement congressional in the Co., Sulphur Gulf assumed, violator, legislatively and a it is denied, Cir.), 404 U.S. cert. improperly by purchasing benefits stocks (1971). other “Unless 30 L.Ed.2d artificially at an low because of a statute, all the inherent provided wise imposed to duty Congress breach powers of the District Court are equitable position. The dis- disclose his investment proper complete exer for the available holding position of that in ex- closure —a jurisdiction.” cise of that Porter v. War company’s cess of 5 of another 395, 398, Co., 66 Holding 328 U.S. ner suggests to the rest of the market a stock— 1089, (1946); 1086, 90 L.Ed. 1332 see S.Ct. likely may increase takeover and therefore Jewelry, v. Robert DeMario also Mitchell of the circum- stock. 288, 291-92, 332, Inc., 361 U.S. scheme, theory that and the vented (1960). 334-35, see no 4 L.Ed.2d 323 We statute, bound, is that the which we are language legislative or the indication the injury mar- circumventions caused to other implies a history of the 1934 Act that even participants ket who sold stock without equitable remedies of the restriction on the holdings. knowledge of First We v. Electric Auto- district courts. See Mills therefore no relevant distinction be- see Co., 375, 391, 616, 90 Lite 396 U.S. S.Ct. trading disgorgement prof- of inside tween 625, (1970). Disgorgement, 24 L.Ed.2d 593 13(d) disgorgement post-section its and of then, simply is available because the rele profits. violation Exchange provisions vant of the Securities remains, course, question There 1934, 21(d) (e), sections and 15 Act illegal prof- those how the court measures 78u(d) (e), jurisdiction in U.S.C. and vest §§ Appellants vigorously dispute the its. $2.7 the federal courts. figure million that the district court arrived Indeed, appellants concede that profits by simply calculating at all of the disgorgement routinely is rather ordered (in eventual sale realized its back trading despite violations a sim Ashland) for insider shares First that specific lack of authorizations for City purchased ilar March 14 and 25. between remedy e.g., law. under the securities See n. 24. The See 688 at 728 SEC’s 1096; Tome, disgorgement, v. 833 F.2d at v. the district SEC SEC claim to which Materia, 197, (2d Cir.1984); accepted, predicated 201 on the as- 745 F.2d court Loss, sumption L. that had First made its sec- generally see Fundamentals Regulation (1988). 13(d) disclosure on March at the 1004-11 tion Securities Act, According change sponsor effects of a in substantial sharehold- to the of the Williams 13(d) may only way corpo- 1967) (January ings.” section rations, be "the 855 Cong.Rec. (statement Williams). their shareholders and others can ade- of Sen. quately possible evaluate a tender offer or the to Ashland the 25th communicated day period,22 prior statutory 10 end (3) pub- holdings, Ashland of their March size during the purchased it stock Belzbergs’ position on in a purchased licly disclosed the been would have period disclosure, (4) ex- and presumably more 25th before quite different market imminent hypothetical 25th, of an market. That rumors swirled pensive by the disclosure by the In an at- per been affected share. have bid at $55 would takeover greater Belzbergs taken Belzbergs how tempt hypothesize and would percent stake Ashland they disclosed on than have acted—had would propose a tender offer. soon market how the 14—and actions, the witness responded to those primarily disgorgement Since scenarios three alternative presented enrichment, the unjust prevent serves accurately measured the more in his view power may equitable exercise court nondisclosure and which impact of the causally related to property over zero, figures of disgorgement yielded remedy may well be wrongdoing. The $864,588. $496,050, Perhaps not sur- others to deter the SEC’s efforts key to appellants’ testified witness prisingly, laws, dis violating but the securities from required no dis- most realistic scenario punitively. may used not be gorgement at all.23 gorgement (5th Blatt, F.2d SEC See Nursing Cir.1978); Cen v. Manor SEC at were obtainable If exact information (2d Cir.1972). 1082, 1104 Inc., ters, cost, not hesitate to negligible we would Therefore, generally must distin the SEC government a strict bur- impose upon the illegally ob legally guish between produce that to measure data den Am. v. British profits. See CFTC tained ill-gotten gains. Un- amount of the precise Options Corp., Commodity imprecision and fortunately, we encounter denied, Cir.), U.S. cert. Despite sophis- imperfect information. (1986). Appel 186, 93 L.Ed.2d 120 S.Ct. modelling, predicting econometric ticated market hypothetical assert lants responses to alternative vari- market stock urged the SEC March 14-25 that between found, is, at best court as the district ables accepted simplis calculating dis- Rules for speculative. unrealistic, puni so de tic, quite facto separating recognize must gorgement account other It did not take into tive. exactly may at illegal profits legal from 13(d) disclo the section variables—besides See, e.g., near-impossible task. abe times 25 post-March caused the sure—which Inc., F.2d Myers, Liggett & v. Elkind that which above price of the stock rise Cir.1980). 156, (2d period. 14-25 during the prevailed March need Accordingly, disgorgement testified appellants’ expert witness At trial prof approximation only be a reasonable independent combined four factors In to the violation. causally connected the level it price to the stock increase context, typically courts trading insider the factors that these on March 25 and reached profits all return require the violator to 14, the present on when not March were trades, see, e.g., illegal SEC made He disclosed. should defendants have 1301, Co., F.2d Sulphur (1) Texas as: these factors identified Gulf 1005, denied, Cir.), 404 U.S. cert. 8 and 9 Belzbergs by the 25th between held (1971), and L.Ed.2d 558 Belzbergs 92 S.Ct. Ashland, (2) had percent of prices 10-day Ashland Since days” 4-14 window. it is provides "within 10 but statute 22. period than dur- City until 4-14 have waited lower in the March that First would assured 17-25, that no ing believed the end. March witness analysis, appropriate. This disgorgement was disgorge- expert witness concluded 23. The buy- impact of does not consider City unnecessary if First had was because ment 890,000 10-day peri- this ing within these shares claims it the SEC on March as disclosed 330,000 shares to the od—in addition have, we should assume should pre- actually purchased Belzbergs then —which peri- actually bought March 17-25 in the up price. pushed sumably have would itself view) Belzberg's (the 10-day window od would purchased in the lawful have been disgorge City had disclosed on March restrict the rejected calls to illegal precise impact price up of the would not have run then to the ment to the Elkind, price. trading difficulty the market See it did after March 25. The extent 171; Am. CFTC v. British at appellants’ argument with is that we see cf Corp., 788 F.2d 92 Options Commodity independent four factors are none of the (2d Cir.) (concluding that a nexus between 13(d) determination. the section disclosure disgorgement and the the unlawful conduct Thus, although by City had March 25 figure shown because of need Ashland, percent of accumulated 8-9 fraud), denied, pervasiveness of the cert. slightly March 14 it over 5 whereas on had 93 L.Ed.2d 479 U.S. (and might percent although the market (1986). figure), strongly higher to the react more why not assume we do not see we should Although the SEC bears the ulti City acquired that First would have persuasion its dis mate burden they 14—if reasonably approximates before March knew gorgement figure enrichment, unjust they we be earlier date. the amount of had to disclose on the government’s showing appel Second, likely lieve the it seems that' First profits actual on the tainted transac lants’ management would have notified Ashland’s presumptively at least satisfied tions they planned on March 13 if to disclose Appellants, to burden. whom burden they day, just on the next did on March shifted, going obliged were then forward Third, premature Ashland’s disclosure disgorge clearly to demonstrate that the (prior holdings of First to the section approxi not a figure ment reasonable 13(d) notice) likely have also oc- may Defendants in such cases mation. finally, curred. market And the March 25 instance, showing, make such a probably takeover rumors were associated pointing intervening events from the activity, with all of the above which is time of the violation. SEC v. Mac inextricably impending linked with the sec- (1st Cir.1983) (en Donald, 699 F.2d 47 13(d) agree tion notice. We therefore with banc), the First reversed a district Circuit appellants’ the district court that efforts to requiring the defendant to dis court order hypothesize both the takeover efforts of a gorge profits illegal from an all insider complied with section trade when the defendant had held on to impos- and the market reaction to that are year. the stock for more than a The court sibly speculative. figure to a restricted the amount based on Placing the burden on defendants of “a time of the stock reasonable rebutting showing prof- the SEC’s of actual public in after dissemination inside its, result, recognize, may as it has in we Similarly, formation.” Id. at 55. the Sec context, profits the insider trader actual Nursing ond v. Manor Circuit SEC Cen becoming typical disgorgement mea- ters, Inc., (2d Cir.1972), F.2d 1082 re sure. But the line between restitution and disgorgement remedy fused to extend the blurred, penalty unfortunately is and the ini subsequently earned on the income uncertainty risk of should fall on the cases, profits. In those illegal tial de wrongdoer illegal whose conduct created a clear in fendant demonstrated break uncertainty. MacDonald, v. See SEC attenuation of the causal con considerable 47, (1st Cir.1983) (en banc); 699 F.2d illegality and the ulti nection between Inc., Liggett Myers, Elkind v. & profits. mate Cir.1980); Bigelow v. RKO cf. Here, appellants ap- took a different Pictures, Radio 327 U.S. using sophisticated expert proach wit- 574, 580, (1946) (placing 90 L.Ed. 652 noted, they ness. As we maintained that uncertainty wrongdoer risk of on the in the post-March by was influenced context).24 antitrust independent four other factors besides 13(d) disclosure, even if belated section so suit, applies SEC where deterrence is the This test in the context of an enforcement the district court re- Nor do we believe fact- district court’s We conclude re- appellants’ on lack of dispositively lied nor clearly erroneous

findings neither were grounded any lack of remorse morse or bias, uphold and we product judicial of presentation appellants’ determination on disgorgement injunction and permanent Rather, defense. the district vigorous of a judgment of Accordingly, the orders. appellants’ lack of remorse to court cited court is district credit decision not to support the court’s Affirmed. in promises obey the law the appellants’ reasoning, supports this future. Case law GINSBURG, unproble- on the essentially turns BADER Circuit which RUTH professions of EDWARDS, matic future conclusion Circuit Judge, joined proffered compliance not credible when are Judge, concurring: deliberately by persons who have broken set out bear- qualification below With the past. in the and lied to the court the law relief, injunctive we propriety of ing on the Indus., Inc., Koracorp See SEC v. in- opinion. The join Judge Silberman’s (9th Cir.1978). affirmation, satis- we are junction bears event, if the district any even judge’s alleged fied, district because the improper finding of rely part in on an did in his calculus improper factors inclusion of remorse, any regard error in this lack of all. it occurred at harmless—if indeed rank as harmless. The district would therefore, indepen- not, decide need We grant injunction judge his of based warranted; injunction is dently that an re- primarily precisely the same factors on moreover, so, we to do even if we were appellants’ by Judge lied on Silberman: district rest our decision the securities laws violation of deliberate fact, findings are pivotal court’s which findings position. These and their business clearly erroneous. not supported by the record and amply First, hardly plain it is, There ac- injunction. an justify alone improper any on judge actually relied upsetting appeal cordingly, no cause injunction. His ref- granting factors by the district injunction decreed court. appel- “public perception” that erence to a in hostile takeovers was engaged lants finding, firmly ground- his

made to bolster evidence, ap- properly admitted

ed repeated oppor- offer

pellants’ business will of securities future violations

tunities public perception reference to laws. The America, Appellee, STATES UNITED note, is opinion, court’s we v. (and critical between this sandwiched BURNETT, Appellant. Trevor I. cita- finding genuinely questionable) No. 89-3031. core holding that such a to a case tion injunction. See SEC finding supports Appeals, Court United States Corp., Financial Circuit. District Columbia Justifying an in- (D.D.C.1988). 2, 1989. Nov. Argued public propitiating sen- junction in terms of 8, 1989. Dec. Decided a matter objectionable as timent would be remedial law; the district court’s but securely placed and did judgment here was crucially infirm reed. on that

not rest Loss, investors.”); L. compensate objective. private parties seek is not key Where two Funda- remedies, ed. wrongdo- compensation monetary Regulation Securities mentals action, Thus, 1988). party private seek- in a ing important, perhaps the a more becomes Tome, may greater monetary compensation have a dominant, ing SEC v. rationale. See request- (2d Cir.1987) prove claim to the amount (stating that unlike burden disgorgement primary purpose ed. damages, "the notes judge did the law to the situation are two different not admire specialize those who things.” invest- He also said hearing, at that ing control, in the corporate market for appellants emphasize, that he had “some even expressed that he some distaste for idea as to how the case should [he] feel[s] aspects of their operations. That, normal be decided.” But that statement was in judicial is not bias. Even where a the context of further remarking, “[Y]ou judge expresses policy, his views on law or necessarily don’t my infer that from views that “preconception” may provide case, any questions about the that I basis for a if judge reversal still words, “is have asked.”9 In prom- other he

Case Details

Case Name: Securities and Exchange Commission v. First City Financial Corporation, Ltd.

Court Name: Court of Appeals for the First Circuit

Date Published: Dec 1, 1989

Citation: 890 F.2d 1215

Docket Number: 88-5232

Court Abbreviation: 1st Cir.