author: OAKES, Circuit Judge:

text:
    GLEN-ARDEN COMMODITIES, INC., and Milbank Trading Co., Inc., et al., Petitioners, v. Hon. Mark A. COSTANTINO, U.S.D.J., Respondent. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. GLEN-ARDEN COMMODITIES, INC., et al., Defendants. SECURITIES AND EXCHANGE COMMISSION, Appellee, v. GLEN-ARDEN COMMODITIES, INC., and Milbank Trading Co., Inc., et al., Appellants.
    Nos. 817, 818, 1001, Dockets 74-1039, 74-1069, 74-1236.
    United States Court of Appeals, Second Circuit..
    Argued Jan. 23, 1974.
    Decided March 14, 1974.

      Bradley R. Brewer, New York City (Brewer & Soeiro, New York City), for appellants.
    Michael A. Macchiaroli, Securities and Exchange Commission, Washington, D. C. (Walter P. North, Associate Gen. Counsel, Robert E. Kushner, Asst. Gen. Counsel, Washington, D. C., Steven J. Shore, New York City, Atty., New York Regional Office), for appellee.
    Before HAYS, MANSFIELD and OAKES, Circuit Judges.
   OAKES, Circuit Judge:

The case before us is a consolidation of two appeals and a petition for mandamus. One appeal and the petition relate to certain “temporary restraining orders” entered by the United States District Court for the Eastern District-of New York. The second appeal is from a preliminary injunction entered by the same court on January 18,1974.

The orders and injunction below were entered at the behest of the Securities and Exchange Commission in its suit to enjoin Glen-Arden Commodities, Inc., and Milbank Trading Co., Inc., together with certain individual officers and directors of these two closely related companies (the Glen-Arden defendants), from certain acts, practices and courses of conduct allegedly in violation of the Securities Act of 1933 and the Securities Exchange Act of 1934. On the merits, the question presented is essentially whether the Glen-Arden defendants were selling commodities consisting of casks of Scotch whisky, not subject to SEC regulation, or whether they were selling securities within the ambit of § 2(1) of the Securities Act, 15 U.S.C. § 77b (l) On August 23, 1973, the Commission sued the petitioners to enjoin them from conduct in violation of §§ 5(a), 5(c) and 17(a) of the Securities Act of 1933, as amended, 15 U.S.C. §§ 77e(a), 77e(c) and 77q(a), and §§ 10(b), 15(a) and 15(b) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78o(a) and 78o(b), and Rule 10b-5 thereunder, 17' C.F.R. 240.10b-5. At the same time the suit was begun, the Commission served the Glen-Arden defendants with a motion for a preliminary injunction returnable September 21, 1973. After a number of procedural fits and starts, which included an extension of the return date on the preliminary injunction motion, a denial of a Commission request for a temporary restraining order, various postponements of evidentiary hearings and the filing of motions for summary judgment, the Glen-Arden defendants filed a notice of motion seeking to prevent the commencement of an evidentiary hearing pending the convening of a three-judge court to consider whether the term “investment contract” in the statutory definition of the term “security” in the federal securities laws was void for vagueness. 'This motion was filed although this court had ruled in SEC v. Brigadoon Scotch Distributing Co., 480 F.2d 1047, 1052 (2d Cir.1973), cert. denied, 415 U.S. 915, 94 S.Ct. 1410, 39 L.Ed.2d 469 (1974), that the argument was “untenable.” The district court on November 15, 1973, denied the motion to convene a three-judge panel and from this the defendants filed an application for a stay in the court of appeals. We heard the matter on November 16, 1973, treated the application as one for a writ of mandamus, and denied it from the bench (No. 73-2699). On that same day, the district court began its hearings on the SEC’s motion for a preliminary injunction. At the close of the day’s testimony the SEC again requested a temporary restraining order, and after oral argument the district court granted a temporary restraining order until the next hearing day, a week later.

On November 23, 1973, the hearing was continued and considerable testimony was heard from investor witnesses and approximately 40 documents were introduced into evidence, and again after the hearing the SEC requested and the court granted a temporary restraining order, this one “pending determination of the plaintiff Commission’s motion for injunctive relief.” The eviden-tiary hearing continued on November 30, 1973, and on December 5, 1973, the court granted another temporary restraining order pending determination of the SEC’s motion for injunctive relief. On December 10, 11, 17 and 18, 1973, hearings continued, despite the trial judge’s prediction that the case would be disposed of on November 23, and by that time almost 100 exhibits had been introduced and 800 pages of testimony taken. On December 18, after the final day of hearings, the court issued yet another self-styled “Temporary Restraining Order” which was to continue pending determination of the Commission’s motion for injunctive relief. This order, identical to those which preceded it, restrained defendants from, among other things, selling or offering for sale securities in the form of Scotch whisky warehouse receipts or any other securities of any other issuer in violation of the registration and anti-fraud provisions of the Securities Act and the Securities Exchange Act.

On January 10, 1974, the defendants filed this petition for mandamus regarding, and a notice of appeal from, the temporary restraining orders of November 23, December 5 and December 18, 1973 (“the orders”). The defendants sought a stay by this court of the orders in effect and a prompt and expedited hearing of the issue presented by the petition and other relief. Thereafter, on January 17, 1974, the district court issued an opinion containing findings of fact and conclusions of law and on January 18, 1974, signed a preliminary injunction restraining defendants from violating the applicable sections of the Acts involved. On January 21, 1974, the Glen-Arden defendants filed a notice of appeal from that preliminary injunction. Thereafter, on oral argument, we granted the motion of the defendants, consented to by the SEC, to consolidate this latter appeal with the appeal and petition for mandamus then before us. We denied, however, a motion by the Glen-Arden defendants to file an additional brief in the latest appeal in light of the delay that this would cause and in light of the fact that the merits were fully briefed on both sides in the papers in the initial appeal.

The temporary restraining orders, attacked by the Glen-Arden defendants in the first appeal and the petition for mandamus, by their own terms were effective only “pending determination of the motion for injunctive relief.” This presumably referred to the motion for a preliminary injunction which was before the court. Thus, inasmuch as the court has now rendered its decision on the preliminary injunction, the temporary restraining orders, whether valid or not when entered, have now lapsed and any decision on them would be moot.

Accordingly, then, we shall direct our attention to the appeal from 'the preliminary injunction of January 18, taking into account the findings of fact made by the district judge on the basis of the evidence presented. Essentially the facts may be stated as follows.

Milbank Trading Co., Inc. (Milbank), is a New York corporation and wholly owned subsidiary of First Credit Bank, Ltd., a Bahamian corporation. Glen-Arden Commodities, Inc. (Glen-Arden), which was known until early 1973 as Mil-bank Trading Co. of Connecticut, Inc., is a Connecticut corporation. Defendant Deeb is the president of Glen-Arden and was an officer of Milbank. Defendant Lamonica was a controlling person of Milbank and Milbank’s Scotch buyer as well as a stockholder and president of Scotch Exchange, Ltd., a Bahamian corporation which supplies Milbank with Scotch whisky. Defendant Weinstein is president of the First Credit Bank, Ltd., and president of Milbank as well as a stockholder and director of Scotch Exchange, Ltd. Defendant Loffman and defendant Losey were sales representatives for Glen-Arden, as is defendant Loeb, who also owns 10 per cent of Glen-Arden’s stock. Defendant Galioto is the vice president and secretary of Milbank.

Milbank began in February, 1967, to engage in the offer and sale of Scotch whisky warehouse receipts, which evidence ownership of casks of whisky stored in bonded warehouses in Great Britain. This was done apparently through a number of affiliated corporations including Glen-Arden and its predecessor. Milbank’s sales are effectuated through these affiliates. Mil-bank and Glen-Arden are essentially one in that Milbank supplies Glen-Arden with all its whisky at an agreed price, processes all of Glen-Arden’s paper work, refers customers to Glen-Arden and grants Glen-Arden exclusive sales rights in specified areas. Milbank performs á number of services for Glen-Arden customers including the payment of insurance and warehousing charges. The sales literature of the two companies is closely coordinated and in some cases virtually identical. In Dun & Bradstreet reports Glen-Arden refers to the fact that it is “closely affiliated” with Milbank, and there is evidence that Glen-Arden solicitations explaining the advantages of investment in whisky refer to how Milbank of New York’s customers have realized a profit.

As stated, Milbank obtains its inventory through the efforts of its buyer, defendant Lamonica, who purchases all of Milbank’s Scotch from the Bahamian corporation, Scotch Exchange, Ltd. While not perhaps material to the main point at issue, it is obvious that purchases through the related corporations have enabled the defendants substantially to mark up their whisky investments through a series of resales and to allocate a large portion of any total corporate profits to the books of foreign corporations. These Bahamian corporations have also been used to make offers to repurchase whisky from investors, thereby lending credence to the predictions of profit made by the salesmen. The salesmen also have referred to their connections in the Bahamas in that they can sell the investors’ whisky there in order to avoid federal taxes. ■

Glen-Arden conducts its representation through sales representatives whom it trains and pays on a commission basis; it also provides sales literature in the form of mailings and news or other releases.

There is no basic dispute for purposes hereof with the findings below that the defendants’ mode of operation was to recruit salesmen familiar with neither the Scotch whisky business nor investment practices and to provide them with a canned sales pitch along with sales literature and direct them to potential customers solicited through mass merchandising techniques such as newspaper advertisements and the indiscriminate use of mailing lists. The specific defendants Deeb, Loffman, Loeb and Losey appeared at various sales meetings during which salesmen were instructed to make certain assertions to induce the customers to invest in Scotch whisky warehouse receipts. These included :

1. Milbank’s expertise would be utilized in selecting the type and quality of Scotch whisky in casks to be purchased;

2. Customers could call Milbank and obtain current information about the Scotch whisky market;

3. Milbank would provide the cooperage of the whisky, that is to say, the storing of it in casks during its maturation period;

4. Milbank would provide two insurance policies to protect the investments;

5. When the customers wished to sell their whisky Milbank would assist them in making a sale without fee or commission;

6. Milbank would handle all administrative details; and

7. Customers could expect a doubling of the value of their investments in three to four years and further increments after that, primarily on the basis that Scotch whisky was a unique investment in that its value enhances merely with age and all of the supply is always sold, whereas in fact the evidence is that the value of Scotch is determined by the basic laws of supply and demand.

The documentation supplied to the Glen-Arden investors included an original sales order which set out the quantity of whisky purchased and the price paid for it; a confirmation evidencing the number of barrels of whisky purchased, the amount of whisky contained in each barrel, and the registration number for each barrel; a copy of the warehouse keeper’s records; transfer certificates issued by the distillery confirming transfer and registration of ownership to the purchasing investor; two insurance policies insuring generally against error or fraud by the warehouse keeper; and a form ordering the warehouse keeper to transfer ownership, which form includes the warranty of the signature of the new owner. The evidence showed that investors never contemplated taking actual physical possession of the whisky, but rather they paid a single price, e. g., $2.80 per gallon, with the understanding that Glen-Arden and Mil-bank would do all that was necessary to turn a profit for its investors. There was evidence from customers that they relied upon the expertise of defendants in the management of the investments and were not fully apprised of the risks involved in investments of Scotch, including fluctuations in price or difficulties in resale, particularly of the small quantities involved in terms of the investors’ purchases. The providing of cooperage and insurance and promised assistance in the liquidation of their investments was of the greatest importance to the investors who, according to their testimony, without them would not have purchased the warehouse receipts. There was evidence indicating that defendants and their agents made promises to prospective investors that the whisky purchased would double in value in four, triple in six, and perhaps even quadruple in eight years, but in any event would enhance in value day by day; in this regard, investors were not told that there was a substantial surplus of the production of grain whiskey in the late 1960’s which had severely depressed grain whiskey prices. Moreover, the defendants did not indicate to their customers that they were charging Scotch whisky prices considerably in excess of the prices charged by other brokers; Glen-Arden’s prices in early 1972 were $2.80 per unit as opposed to prices available elsewhere of between $1 and $1.50. According to defendant Deeb’s testimony, 1968 and 1969 investments in Scotch are now worth approximately $2 per unit. There was additional evidence from which it could be found that there were misrepresentations relative to the expertise of the defendants as to market conditions, prices and types and quality of Scotch investments. For example, defendants’ expert advice included a recommendation of the purchase of grain whiskey rather than what they called the “volatile malt.” 'Until recently, however, the defendants have never had experience in selling “volatile malt,” and there is other evidence that investments in malts have produced better returns than investments in grains. Investors were not told that there is no organized Scotch whisky market and that the small investors’ quantities are not interesting to most of the brokers.

The Glen-Arden defendants argue here that as a matter of law they were engaged in the'sale of commodities or certificates of. interest therein and, therefore, their activities are not within the regulatory authority of the SEC as found in the Securities Act of 1933 and the Securities Exchange Act of 1934. The point is argued that in 1934 the definition of the term “security” in § 2(1) of the Securities Act, 15 U.S.C. § 77b, was specifically amended, among other ways, to excise the phrase “certificate of interest in property, tangible or intangible,” which had originally been an example of a security. That phrase was removed in the 1934 amendments “as possibly involving too broad and uncertain application.” H.R.Rep.No.1838, 73d Cong., 2d Sess. 39 (1934). The appellants argue that what they were selling were “certificates of interest in [tangible] property” and that neither expressly nor inferentially can the statute, as amended, include either negotiable warehouse receipts or non-negotiable documents of title to specific identified casks, of bonded Scotch whisky in storage such as were sold by the appellants. In addition to its argument based on the legislative history, the appellants seek to have us find that its operation was equivalent to the selling of futures contracts, such as are made in commodities like wheat, soy beans, cocoa, sugar, tobacco, etc., which are not included in the coverage of the Securities Act. See McCurnin v. Kohlmeyer & Co., 340 F.Supp. 1338 (E.D.La.1972); Sinva, Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 253 F.Supp. 359 (S.D.N.Y.1966). To quote from appellants’ brief (p. 46), Congress “definitely did not intend ... to give the SEC statutory authority to regulate sales of any kind of fungible ‘commodity’ whether it be wheat, soy beans or Scotch whisby stored in barrels somewhere in Scotland and aging in bonded warehouses.”

Initially we note that, as we ourselves have been repeatedly enjoined by the Supreme Court, the federal securities laws are to be construed “not technically and restrictively, but flexibly to effectuate [their] remedial purposes.” SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 195, 84 S.Ct. 275, 285, 11 L.Ed.2d 237 (1963). See also Affiliated Ute Citizens v. United States, 406 U.S. 128, 151, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972); Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967). The mechanical and pedantic reading of the legislative history suggested to us by appellants would not be within that spirit of flexible construction. The mere fact that the words “certificate of interest in property, tangible or intangible,” were excised from the definition of a security on the basis that they were open to too broad interpretation does not support the notion that all certificates of interest in property were to be excluded from the coverage of the Act. In short, what is determinative is not what is left out of the definition of a security, but rather what is included.

The question therefore becomes whether the customers were in fact purchasing simply warehouse receipts, akin to a commodity future, or whether, in light of the economic reality and the totality of circumstances surrounding the sales here, the customers were making an investment, which in view of the appellants’ commitments and representations constituted an “investment contract” within the meaning of § 2(1) of the Securities Act, 15 U.S.C. § 77b(l). The Supreme Court has stated that the test whether a contract constitutes an investment contract within the Securities Act is “what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.” SEC v. C. M. Joiner Leasing Corp., 320 U.S. 344, 352-353, 64 S.Ct. 120, 124, 88 L.Ed. 88 (1943) [quoted approvingly in SEC v. United Benefit Life Insurance Co., 387 U.S. 202, 211, 87 S.Ct. 1557, 18 L.Ed.2d 673 (1967)].

In Joiner the Court found that, while the definition of “security” in the Securities Act specifically included only fractional undivided interests in oil and gas rights and not specific parcels, the sale of specific parcels there was indeed a security or investment contract under § 2(1) of the Act, 15 U.S.C. § 77b(l). In doing so, the Court through Mr. Justice Jackson went to proof “outside the instrument itself,” 320 U.S. at 355, 64 S. Ct. at 120 to establish the conclusion that the defendants were not offering naked leasehold rights but rather were selling documents which offered the purchaser a chance of sharing in discovery values which might follow a current exploration enterprise. As the Court said, “Had the offer mailed by defendants omitted the economic inducements of the proposed and promised exploration well it would have been a quite different proposition.” 320 U.S. at 348, 64 S.Ct. at 122. It was “an economic interest in this well-drilling undertaking [that] . brought into being the instruments that defendants were selling and gave to the instruments most of their value and all of their lure.” 320 U.S. at 349, 64 S.Ct. at 122. As the Court held, at 351, 64 S.Ct. at 123,

the reach of the Act does not stop with the obvious and commonplace. Novel, uncommon, or irregular devices whatever they appear to be, are also reached if it be proved as [a] matter of fact that they were widely offered or dealt in under terms or courses of dealing which establish their character in commerce as “investment contracts,” or as “any interest or instrument commonly known as a security.”

Judged by the Joiner test there can be no question but that here the appellants were selling investment contracts. The defendants guaranteed services, they promised results. The economic inducements were in the nature of inducements to invest. The evidence below shows that investors put up their money not so much to secure casks of Scotch whisky but to participate in an enterprise which was virtually guaranteed to “double their money” in four years. It ill behooves appellants, after enticing their customers with fancy brochures touting their investment plan, now to claim there was no investment plan but the mere sale of an unadorned commodity. Even worse, it does violence to the facts.

Here the customer, unlike the commodity buyer, while purchasing actual tangible property, was upon the representations of appellants buying in addition services absolutely necessary to the turning of the promised profit. In short, it was a “package deal.” An investor was dependent upon appellants for the utilization of their “expertise in selecting the type and quality of Scotch whisky and casks to be purchased . ,” as found by the lower court. It is not as if they were buying simply X carloads of wheat or barley, a commitment to sell which could be supplied by the furnishing of any other carload of wheat or barley. Rather, the very investment made was in goods to be specifically selected by appellants. Appellants also represented that they.would handle all the necessary arrangements for warehousing the Scotch and insuring it. Finally, and probably most important to the customers, appellants represented that they would find buyers for the Scotch or buy it back themselves. This service, especially in light of the absence of a market for small quantities of Scotch, another distinguishing feature from the commodity analogy, was crucial to any customer’s hope to liquidate his investment.

This brings this scheme within the facts of a long line of cases where purported sales of tangible property, service contracts, or both were held to be investment contracts. See, e. g., SEC v. W. J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946); Continental Marketing Corp. v. SEC, 387 F.2d 466 (10th Cir.1967), cert denied, 391 U.S. 905, 88 S.Ct. 1655, 20 L.Ed.2d 419 (1968); Blackwell v. Bentsen, 203 F.2d 690 (5th Cir.1953), cert. dismissed, 347 U.S. 925, 74 S.Ct. 528, 98 L.Ed. 1078 (1954); SEC v. Lake Havasu Estates, 340 F. Supp. 1318 (D.Minn.1972); SEC v. Payne, 35 F.Supp. 873 (S.D.N.Y.1940). See also SEC v. Glenn v. Turner Enterprises, Inc., 474 F.2d 476, 481-482 (9th Cir.1973). There have been many other schemes, in short, where the public was led into buying what purported to be tangible items when in fact what was being sold was an investment entrusting the promoters with both the work and the expertise to make the tangible investment pay off This long-term construction placed upon an act of Congress is hardly one that we could disturb even if we wanted to, at this late date.

There is ample evidence in the record to justify the trial court’s decision that the SEC had clearly met its burden of showing probable success on the merits and that there was a likelihood of continued violations of the registration and anti-fraud provisions of the securities laws, thereby giving more than sufficient basis for entry of the order of preliminary injunction. Gulf & Western Industries, Inc. v. Great Atlantic & Pacific Tea Co., Inc., 476 F.2d 687, 692-693 (2d Cir.1973); Robert W. Stark, Inc. v. New York Stock Exchange, Inc., 466 F.2d 743, 744 (2d Cir. 1972); SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1100 (2d Cir.1972).

Order of preliminary injunction affirmed; petition for writ of mandamus denied; appeal from temporary restraining orders dismissed.

      . § 77b. Definitions
      When used in this subchapter, unless the context otherwise requires—
      (1) The term “security” means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract,
      voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

      . We note that while temporary restraining orders are normally not appealable, we would not be bound by the trial court’s characterization or even its conception of the orders. Belknap v. Leary, 427 F.2d 496, 498 (2d Cir. 1970) ; Grant v. United States, 282 F.2d 165, 167-168 (2d Cir. 1960). The distinguishing characteristics of a temporary restraining order under Fed.R.Civ.P. 65(b) are “its availability as an ex parte remedy, and its propensity to self-destruct after twenty days, at the outside.” Morning Telegraph v. Powers, 450 F.2d 97, 99 (2d Cir. 1971). These characteristics are not present here where both sides had ample opportunity to be heard and indeed were heard, and where the orders were extended well beyond 20 days without explanation therefor. See 7 Moore, Federal Practice 65.07, at 65-82. Rather the orders seem more characteristic of preliminary injunctions, which have no specific time limitation and which can be entered only after both sides have been heard.
      We are not advised, nor do we know, why, in view of the fact that the court was hearing so much testimony and taking so many exhibits, it did not follow the often salutary and time-saving practice of consolidating the application for a preliminary injunction with the hearing on the merits relative to the final injunction, as permitted by Fed.R.Civ.P. 65(a)(2).

      . Grain whiskey, also known as patent-still, is opposed to pot-still or malt whiskey; the grain whiskey is distilled from a fermented mash of barley malt and other, unmalted cereal grains. While some grain whiskey is sold as single or straight, generally speaking various grain whiskeys are blended with a number of other malt whiskeys for purposes of resale. See generally, 23 Encyclopedia Británica 477 et seq. (1972 ed.).

      . Tlie 1934 amendments to the Securities Act, as the House Report said, were “intended to apply the Act to interests commonly known as ‘securities’ whether or not such interests are represented by any document or not [sic].”

      . It may not be enough of an answer to appellants to say, as a connoisseur of Scotch might be tempted to say, that Scotch whis-ky is hardly fungible. We need not simply take judicial notice of the fact that the various Scotch whiskys vary with the type and character of the grain used for mash, with the form of distilling process, whether by pot-still or patent-still methods, with the quality and character of the water used or indeed with the character of fuel used in the kiln drying process, the smoke of which gives Scotch its special flavor. Nor need the appellants’ arguments be answered simply by saying that, far from being fungible, Scotch whisky differs markedly, by brand and distillery, by blend, by year of blend and by age. See generally 23 Encyclopedia Britanica 477 et seq. (1972 ed.). We can suggest, however, that merely by referring to Scotch as fungible appellants seem to belie their own expertise.

      . For our purposes the definition of “security” in the Securities Exchange Act is “virtually identical.” Tcherepnin v. Knight, 389 U.S. 332, 335-336, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967).

      . The Scotch whisky investment game itself is not unknown to the SEC, and courts have uniformly found investment, contracts there involved. In Penfield Co. of California v. SEC, 143 F.2d 746 (9th Cir.), cert. denied, 323 U.S. 768, 65 S.Ct. 121, 89 L.Ed. 614 (1944), the promoters agreed to bottle whiskey represented by warehouse receipts, to sell the bottled whiskey and to pay the contract holders the proceeds less a commission. As the court said, 143 F.2d at 750, the term “investment contract” includes “agreements where ‘the purchasers [look] entirely to the efforts of the promoters to make their investment a profitable one,’ ” quoting Atherton v. United States, 128 F.2d 463, 465 (9th Cir. 1942). This analysis was approved in SEC v. W. J. Howey Co., 328 U.S. 293, 298-299, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). In Penfield the appellant pointed to its expertise in knowing when whiskey might age and be bottled and pointed to tbe expectations of profit in terms of the whiskey receipt holder receiving double the amount he would by a sale of the hulk whiskey; there, too, the contract holders did not have the facilities to take the whiskey and dispose of it.
      Even more recent cases involving whiskey where courts found investment contracts include SEC v. Haffenden-Rimar International, Inc., 362 E.Supp. 323 (E.D.Va.1973), appeal pending, where the investors relied solely upon the advice of the defendants in selecting, buying, storing, trading and selling the Scotch represented by their warehouse receipts, and SEC v. M. A. Lundy Associates, 362 F.Supp. 226, 236 et seq. (D.R.I. 1973), where the defendants sold warehouse receipts for casks of malt whiskey under a plan virtually identical to that here.

      . Appellants’ argument that the district court should not have heard any evidence of fraud is also absurd because in determining whether or not to grant preliminary relief the district court was bound to consider whether or not there was a likelihood of success on the merits. Moreover, many of the facts necessary to demonstrate that the contracts were securities involved the inducements and representations made to engender sales, facts closely related to any claim of fraud.


source: Caselaw Access Project

author: CHRISTENSEN, Senior District Judge.

license: Public Domain

text:
    Hetty FEY, Plaintiff-Appellee, v. WALSTON & CO., INC., and Robert A. Spira, Defendants-Appellants.
    Nos. 72-1487-72-1490.
    United States Court of Appeals, Seventh Circuit.
    Argued Sept. 21, 1973.
    Decided March 14, 1974.

      John J. Enright, Edwin H. Conger, Chicago, 111., for defendants-appellants.
    Charles A. Boyle, George E. Faber, Chicago, 111., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, HASTINGS, Senior Circuit Judge, and CHRISTENSEN, Senior District Judge.

       Senior District Judge of the District of Utah sitting by designation.

   CHRISTENSEN, Senior District Judge.

These are consolidated appeals in a suit for damages brought by a former customer (plaintiff-appellee Hetty Fey) against a stockbroker (defendant-appellant Walston & Co., Inc.) and its salesman (defendant-appellant Robert A. Spira) for alleged “churning” of the customer’s account. Jurisdiction was alleged and existed by virtue of Section 22(a) of the Securities Act of 1933, 15 U.S.C. § 77v(a), and Section 27 of the Securities Exchange Act of 1934, 15 U. S.C. § 78aa.

The case was submitted by the trial court to the jury on the issue of whether the conduct of the defendants constituted account “churning”, and thus a device, scheme or artifice to defraud within the meaning of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, and in view of the Rules of Fair Practice of the National Association of Securities Dealers, Article III, Sec. 15(a).

Trial was held in the district court before a jury of six members pursuant to local rule, despite defendants’ motion to empanel a twelve member jury. A verdict was returned in favor of the plaintiff and against both defendants for $15,560 and judgment entered on the verdict. Motions for a directed verdict and for judgment notwithstanding the verdict were denied, as were motions for a new trial and Spira’s motion for re-mittitur. A separate judgment in favor of the plaintiff for costs in the sum of $18,227.04, including $15,660 for attorneys’ fees, was entered by the trial court. Both the judgment on the verdict and the supplemental judgment were appealed by both defendants. Appellants contend here that prejudicial error was committed by the trial court in numerous instances, which to the extent deemed to justify discussion may be categorized as follows :

I. The claimed insufficiency of the evidence to warrant the verdict.

II. The preclusion or limitation of evidence both concerning plaintiff’s objectives for maintaining her account with the defendant broker, and relating to her control, or that of her son under power of attorney from her, over the trading in question.

III. Claimed failure to instruct the jury correctly or adequately concerning appellee’s'theory of the case.

IV. Claimed errors in instructions concerning the measure of damages, and in denial of Spira’s motion for damage remittitur.

V. The award of various elements of cost, including attorneys’ fees.

Paragraph 5 of the complaint as originally filed alleged that prior to November, 1963, plaintiff Hetty Fey had little or no investment experience; that in that month, when she first became a client of the defendants, Robert A. Spira was so advised; that he was advised also that she would rely heavily on his advice and that as a widow her investment requirements were “maximum security and long term growth”.

Elsewhere in the complaint it was alleged in substance that the defendants represented themselves as trustworthy for handling of plaintiff’s securities; that in reliance upon these representations plaintiff on or about November, 1963, opened a cash account with the defendant broker which on or about December, 1963, on the advice and recommendations of the defendants was expanded to include a margin account, for the purpose of buying and selling securities as plaintiff Hetty Fey would from time to time instruct; that thereby a fiduciary relationship arose between plaintiff and the defendants; that plaintiff reposed complete trust and confidence in defendants and relied upon their advice, counseling and expertise but that her account with Walston & Co. was “not a discretionary account”.

The complaint charged that in violation of their legal duties defendants purchased and sold securities on plaintiff’s behalf without her authority and without her knowledge, failed to follow her instructions of purchase or sale, furnished false and misleading information, recommended purchases without disclosing the facts of such recommendations, recommended further purchases that were unsound in view of the financial condition of the companies and plaintiff’s personal financial condition, without plaintiff’s knowledge or authority effected repeated purchases and sales of securities on her behalf “and otherwise churned the plaintiff’s ... account”.

The defendant broker, according to the complaint, failed properly to supervise Spira’s conduct “as agent and registered representative for its Chicago, Illinois office . . . failed to provide adequate internal controls [for] its Chicago, Illinois office, failed to review the activities of the Chicago, Illinois office and failed . . . ” to examine the account of plaintiff to detect and prevent the violations.

The acts, practices, statements, representations and course of conduct employed by the defendants, the complaint continued, constituted a device, scheme and artifice to defraud the plaintiff through utilization of the instrumentalities of interstate commerce and particularly of the mails and the facilities of the national security exchanges, and were carried on wilfully, maliciously, knowingly and with intent to defraud and deceive the plaintiff to her actual damages in the sum of $50,000. Punitive damages in the amount of $750,000 also were demanded, together with “costs”.

Defendants denied the incriminatory assertions of the complaint and specifically denied that plaintiff had no investment experience. It was admitted that plaintiff’s account was not a “discretionary account”, denied that plaintiff advised Spira that she would rely heavily on his advice, and affirmatively alleged that plaintiff had stated that she was quite proud of her son’s knowledge and ability and wanted him to trade for her and that some of the trades in question also were on the advice of other brokers and their salesmen.

Prior to the trial plaintiff filed a motion in limine seeking to bar inquiry into her prior stock dealings through other brokers by reference to her federal income tax returns. The trial court indicated that it would be “reversible error” for him to grant the motion in view of the allegations of paragraph 5 of the complaint, already summarized, and suggested that the only means by which such inquiry could be rendered irrelevant would be to strike that paragraph. Plaintiff readily embraced this suggestion and her motion accordingly was granted by the court. Apparently it was then the court’s view that the striking of paragraph 5 rendered the controlling issue simply one of authority or lack of authority on the part of the defendants to make the trades in question and that any previous trading experience would not be material to this issue, despite the contrary analysis of the gist of plain-, tiff’s claim by Spira’s counsel prior to the court’s ruling.

The plaintiff, who was a widow, testified that she had been employed since her husband’s death in 1956, having been left little or no assets. In November, 1963, she had $11,000 or $12,000 which she had accumulated in part “through some investments”. When her counsel sought to establish what part her earned income played in this accumulation the trial court sustained an objection, saying, “the issue here is whether or not she authorized these people to make sales.” When plaintiff later pressed a similar line of inquiry and argued that it went to the point of what would be considered “excessively trading her account” the court commented:

“Then you open it up for them to come in and show her experience in the field of investing, you propose? Is that what
“Mr. Boyle (counsel for plaintiff): No, your Honor.
“The Court: That is exactly what you will do if you get into that. I will then be compelled to let them show that she had some erudition and background. . . . ”

Plaintiff testified that her son introduced her to Spira, the salesman. She opened an account with him after he telephoned her and told her of two stocks he wished to interest her in. It was her intention that she alone was to trade in the account. Initially she testified that the salesman started buying and selling securities for her without her knowledge and authority. Later she said that the account was a “discretionary” one and that she never objected to any of the purchases. Finally she testified that although it was not completely discretionary, the salesman had some discretion and that her practice was to telephone him after she received the confirmation if she had any question about the transaction. She testified that she relied upon the advice of Spira in reaching her decisions with specified exceptions and that she reposed in him great trust and confidence.

During cross-examination plaintiff stated that although she regularly received statements and confirmations, she had not objected to the trades in her account with the exception of a sale of SCM stock, but she had “questioned” Spira concerning some of the transactions. She admitted that she or her son had initiated a number of transactions in the account, including various “Syn-tex” purchases and sales, and that the salesman had not recommended Syntex stock to her. She also testified that the purchase of 700 shares of Crucible Steel stock, on which she claimed against defendants an unrealized loss as of the time she withdrew the shares from her account, was initiated by her.

In early February, 1964, plaintiff signed a general power of attorney in favor of her son, Barry Fey, which authorized him to trade for her. She stated that she signed the power only to permit her son to make a day trade in Syntex on her account and because the broker’s office manager had requested her to do so. However, she did not terminate the power until June 3, 1964, when she wrote a letter to the broker stating, “I wish to rescind any power of attorney that may exist for anyone but myself to trade for my account with you.” Plaintiff could not recall why she wrote this letter.

During cross-examination the plaintiff initially denied that she had done any other trading while she was dealing with the defendants. When shown copies of monthly statements of her account with Harris, Upham & Co., which disclosed seventeen trades during the period of her dealings with defendants, she admitted that these were her transactions and could not recollect whether she was dealing with a third broker at the time. She was shown Schedule D of her 1964 federal income tax return which disclosed stock trades in addition to those disclosed by the Walston, and the Harris, Upham monthly statements. She initially denied that prior to dealing with defendants she had bought and sold the same security on the same day but modified her testimony when shown a statement of her account with A. G. Becker & Co.

But even though her contemporaneous investment experience with other brokers was gone into, the court refused to permit inquiry concerning plaintiff’s stock trading prior to her dealings with defendants other than for limited impeachment purposes, restricted defendants from laying foundations for such impeachment, and refused to admit into evidence brokerage statements of her other accounts either prior to her dealings with the defendants or concurrent therewith. The trial court also refused to permit defendants to develop evidence concerning plaintiff’s investment objectives by questions with reference to allegations in the stricken paragraph 5 of her complaint to the effect that her investment requirements were maximum security and long term growth.

The general effect of plaintiff’s testimony was to represent herself as a customer with some fixed ideas of her own, relying somewhat on her son and occasionally on other brokers, but otherwise generally relying upon the initiation, advice or acquiescence of the defendant Spira in view of the confidence she reposed in him.

The plaintiff’s expert witness, Cor-bett, had been employed by the Securities and Exchange Commission from 1941 until 1969, the last eleven years as Chief of Investigations for the Chicago Regional Office. Before that he had been with Lamson Brothers & Co., a member of the New York Stock Exchange. In preparation for the trial he had reviewed in detail the plaintiff’s account confirmations and monthly statements from Walston for the purpose of determining whether the activity in that account was “excessive”. His analysis included the determination of “turnover of the net investment” for the 26 month period of the account. Total purchases amounted to $165,559.58, and total sales were $139,327.36. After crediting defendant $19,046.98 for the securities that had been delivered to plaintiff, there was a trading loss of $7,185.24, and an interest expense of $885.04 which amounted to a total of $8,075.88, including a tax item of $5.60. The unrealized loss of $3,655.73, attributable to stocks held in the account at the time it was closed including the Crucible Steel stock heretofore referred to, when added to the realized loss of $8,075.88, indicated a total loss of $11,731.61, including commissions of $3,573.06, according to Cor-bett’s testimony. To determine turnover ratio Corbett took the net average monthly investment and divided it into the total purchases. By this means turnover rate for the 26 month period was determined to be once every 2 months, or 13 times, which in Corbett’s opinion was “excessive”. The witness on cross-examination conceded that in order to determine whether there was wrongful excess trading one would have to look into the customer’s motives and objectives, which the witness had not done; that before the SEC would proceed with a churning charge it would have to have more information than was shown by the confirmations and monthly statements in evidence, and that legal questions which he had not considered, as well as the factual questions which he had investigated, would enter into any decision whether there was “churning”.

Other witnesses were called in support of plaintiff’s case, including former and current Walston employees, but they supplied no significantly new or different information.

Spira testified in his own behalf and called his wife and a former secretary as additional witnesses, whose testimony was essentially consistent with his positions but again added little of significance. Spira asserted that he made no trades without orders from Mrs. Fey or from her son while the latter held her power of attorney and that he acted in good faith in endeavoring to carry out plaintiff’s desires and in her interest. He was unable to remember the details of many transactions and as to why they were made.

Without intending any comprehensive summary of the extensive and complicated record, we believe sufficient background now has been provided to permit meaningful discussion of the asserted errors of the trial court.

I

As confused as some aspects of plaintiff’s case may have been, we must hold that substantial credible evidence supported the verdict of the jury in favor of plaintiff, at least on the issue of liability, in view of our duty here to look to that evidence favorable to her and to resolve debatable inferences against the movants. Avern Trust v. Clarke, 415 F.2d 1238 (7th Cir. 1969), cert. denied, 397 U.S. 963, 90 S.Ct. 997, 25 L.Ed.2d 255 (1970); Zuckerman v. Berg Mfg. & Sales Co., 279 F.2d 904, 905 (7th Cir. 1960); Cleary v. Indiana Beach, Inc., 275 F.2d 543 (7th Cir.), cert. denied, 364 U.S. 825, 81 S.Ct. 62, 5 L.Ed.2d 53 (1960). We reject Spira’s contention that a change in appellant’s theory of the case rendered the record inadequate. It is to be remembered that allegations of the complaint other than the stricken paragraph 5 encompassed the claim of churning. The defendants had notice of this claim throughout the proceedings despite the confusion raised by the court’s rationale in striking paragraph 5. In reality some of the assertions of that paragraph were themselves inconsistent with the theory of churning. The motion for a directed verdict and for judgment n. o. v. were properly denied, since they did not reach vulnerable aspects of the proceedings below to which we now turn.

II

In a churning case the independent objectives of a customer are an important standard against which to measure claimed excessiveness. Booth v. Peavey Company Commodity Services, 430 F.2d 132 (8th Cir. 1970); Hecht v. Harris, Upham & Co., 283 F.Supp. 417, 432, 435 (N.D.Cal.1968), modified in part and aff’d, 430 F.2d 1202 (9th Cir. 1970); Moscarelli v. Stamm, 288 F.Supp. 453 (E.D.N.Y.1968); 80 Harvard Law Review, “Churning by Securities Dealers”, 869, 874-75. Certainly evidence bearing upon the experience, sophistication or trading naivete of the customer may be highly significant. Ibid. See also Newburger, Loeb & Co., Inc. v. Gross, 365 F.Supp. 1364 (S.D.N.Y.1973). Despite the trial court’s early impression that the sole question was one of authority and plaintiff’s initial testimony that the trades in question were without her authority, some of her later testimony supported the theory of abuse of authority through churning. The trial court, inconsistent with evidential developments in the case, applied discriminately against the defendants from time to time its initial erroneous view and precluded full exploration by the defendants of plaintiff’s continuing churning theory. It obstructed cross-examination of plaintiff concerning prior stock dealings designed to throw further light upon her trading sophistication. And it unduly limited inquiring as to her investment requirements or objectives on the ground that such examination would have reference to subject matter stricken from plaintiff’s complaint.

Appellants complain in this connection also that the court refused to permit them to examine plaintiff concerning her son’s gambling during 1963-64, and to receive evidence of the son’s declaration to Spira that he was hoping to “bail himself out” by trading plaintiff’s account. Such statements, so extraneous to the issues on the surface, had acquired relevance and possible significance in explanation of a statement in a memorandum prepared by Spira and introduced into evidence by plaintiff that “ . . . considering the mental attitude of the account, I feel we should have something on record for our protection.” Spira testified in making an offer of proof out of the presence of the jury that he had in mind the excluded declarations when he wrote the memorandum. Plaintiff, having brought this memorandum into the case for the purpose of raising an inference of consciousness of wrongdoing on Spira’s part, could not reasonably object to Spir-a’s explanation of what he was referring to by its cryptic language. Yet the problem is not all that clear. At another point Spira was permitted to refer to plaintiff’s comment concerning her son’s gambling problem. And to be in a position of justifying especially active trading by ascribing it to a compulsive gambler holding plaintiff’s power of attorney seems a two-edged sword and arguably could render the preclusion non-prejudicial, although erroneous. In any event, on retrial, a fuller exploration of the reasons for writing the memorandum will be appropriate should either side elect to pursue them.

The trial court indicated that, since plaintiff was available as a witness at the trial and had testified in open court in some detail concerning the subject matter, it was improper for defendants to use portions of her pre-trial deposition except for impeachment purposes. Accordingly objections to the introduction of portions of that deposition as a part of defendants’ case were sustained. Rule 26(d) Fed.R.Civ.P. circumscribes the use at trial of the depositions of non-party witnesses, but with reference to parties or their officers, directors or managing agents, depositions “may be used by an adverse party for any purpose”. The pre-trial deposition of a party is in a position different from that of an ordinary witness, and may be introduced as a part of the adversary’s substantive proof irrespective of the fact that the party is available to testify or has testified at the trial. Community Counselling Service, Inc. v. Reilly, 317 F.2d 239 (4th Cir. 1963). See also Cleary v. Indiana Beach, Inc., 275 F.2d 543 (7th Cir.), cert. denied, 364 U.S. 825, 81 S.Ct. 62, 5 L.Ed.2d 53 (1960), supra. Yet there are limitations which afford a trial court reasonable latitude for expedition of the trial. Useless encumbrance of the record cannot be insisted upon in any case. American Fidelity & Casualty Co. v. Greyhound Corp., 258 F.2d 709 (5th Cir. 1958). Cf. Ikerd v. Lapworth, 435 F.2d 197, 207 (7th Cir. 1970). Repetitious or immaterial matter may be excluded, and the court may require identification of germane portions by specific offer. Zimmerman v. Safeway Stores, Inc., 133 U.S.App.D.C. 342, 410 F.2d 1041, 1044 (1969).

Only a minor part of the proffered deposition evidence passes muster in view of such qualifications to the general rule. Defendants unsuccessfully sought to introduce plaintiff’s deposition testimony concerning statements made to her by third parties on the basis of which she decided to buy 700 shares of Crucible Steel stock through the defendants. Plaintiff attempts to justify the exclusion by pointing out that she testified at the trial that she herself had made the determination to buy the stock. So she had, and to this extent her testimony was consistent. But the deposition testimony also suggested a somewhat speculative reason for the purchase, bearing relevance to one of the important issues in the case — her trading objectives. Walston, at least, is hardly in a position to complain, because its counsel blocked further inquiry on the latter point. Defendants were on solid ground in their offer to prove that plaintiff said in her’ deposition that she made no complaints about trades to Spira or anyone else upon receiving confirmations from the company. This was inconsistent with her testimony at the trial that there were instances when she did make complaint. Other deposition offers were repetitious of testimony already before the court and were reasonably rejected within the discretion of the trial judge. We do not mean to indicate that adverse parties by deposition admissions are not permitted to cumu-late evidence against an opposing party. They may do so as a general rule for the same reason that they may do so through live witnesses, but within the rules of reason mentioned.

Defendant Spira contends that plaintiff’s witness Corbett did not qualify as an “expert” on the issue of “excessive trading”, and in any event, inferentially, that his testimony was incompetent or subject to objection because it involved no explanation or standard by which excessiveness was or could be determined. We believe the court’s ruling as to qualifications was within its discretion. The effect of Corbett’s testimony is another matter, particularly in view of the cross-examination in which he conceded that investment objectives and other circumstances, which he had not considered, would be essential in determining whether any so-called “exces-siveness” could constitute unlawful churning. No motion to strike the testimony concerning the witness’ concept of excessiveness was interposed following cross-examination. If there were error disclosed in the record it was effectually lighted up only by the exceptions sought to be interposed by defendants to the court’s instructions to the jury, which remain to be considered.

Ill

At the threshold of the instruction problem we are confronted with an absence of exceptions following the court’s charge to the jury. Prior to arguments and the giving of the instructions counsel clearly indicated their position on most of the points now relied upon. The court expressly stated that these “exceptions” would carry over under the Rule. Even though there may have been adherence to the letter of Rule 51, Fed.R. Civ.P., such procedure ran counter to its intent and contravened its purpose. Hetzel v. Jewel Companies, 457 F.2d 527 (7th Cir. 1972). The taking of “exceptions” before rather than after the charge tends to turn Rule 51 upside down. Dunn v. St. Louis-San Francisco Railway Co., 370 F.2d 681 (10th Cir. 1966).

The Hetzel remedy (see also Swift v. Southern Railway Company, 307 F.2d 315 (4th Cir. 1962)) of relieving an appellant from the restriction against asserting exceptions not timely taken would not be appropriate where the fault lies primarily with the party rather than the court. Here both the trial judge and the appellants assumed that the earlier objections to proposed instructions were “preserved under the rule”, as the former expressed it. Such mutual assumptions do not necessarily justify departure from the rule and in any event could afford no basis of review if the premature exceptions were only general, or related to matters of form or other problems that could be pinpointed only after a charge was given. See Johnson v. Chesapeake and Ohio Railway Company, 227 F.2d 858 (7th Cir. 1955). And record anticipation of every conceivable objection to a forthcoming charge often serves to encumber the record needlessly on points that become immaterial or are corrected by the charge as actually given. We have considered it proper for future guidance to again emphasize the intent of the Rule as discussed more fully in Hetzel and to sound a note of warning concerning waiver of exceptions which was not explicit in the latter case. But we have chosen to review the objections argued here, since all of them were specifically pointed out to the trial court in connection with pre-instruction discussions, or inextricably relate to objections so pointed out and carried over by reference, with the approval of the trial court, into the post-instruction time frame.

Defendants’ basic objection to the court’s charge is its failure, by refusing to give Walston’s requested instruction “O” or its equivalent, to fully define the offense of “churning”. This failure lights up what we regard as a pervasive error of the lower court in resisting the exploration or signification of plaintiff’s investment objectives in mistaken reliance upon the striking of paragraph 5 of the complaint. The refused instruction in most respects was consistent with the instructions of the court in their totality, but it did appropriately collate and enumerate some of the essential elements of a churning case to include consideration of the known objectives of the plaintiff, and it did acquaint the jury more fairly with defendants’ theory of defense.

Most of the court’s instructions on the issue of liability, extracted largely from Hecht v. Harris, Upham & Co., 283 F.Supp. 417 (N.D.Cal.1968), modified, 430 F.2d 1202 (9th Cir. 1970), supra, were quite proper. Somewhat buried in the charge, however, was reference to the element recognized in Hecht that the salesman failed to conform to the customer’s objectives (283 F.Supp. at 435). This was an important point, for if a salesman does only what the customer independently has in mind as an objective, has authority so to do, and fulfills any fiduciary duty to furnish fair advice, the additional motive of the salesman to earn commissions does not convert the transactions into a deceptive or manipulative device in violation of Section 10(b). Plaintiff seems to accept these qualifications by her argument that her requested instructions 20 and 22 as given by the court, “properly instructed the jury that the needs and objectives of the plaintiffs (sic) were to be considered in determining whether excessive trading occurred.”

“Churning” was not mentioned by the court in the instruction in which the objectives of plaintiff were referred to, although the subject of objectives was more pertinent to the concept of churning than to that of control, which was mentioned. The passing reference to the “needs and objectives of Hetty Fey” in the recitation of a state of circumstances under which the plaintiff was entitled to recover did not in and of itself, nor in connection with the entire charge, tell the jury that this was the only state of facts under which plaintiff could recover. On the contrary, it was repeatedly indicated that plaintiff could recover if defendants were guilty of “churning”;, the court neglected to present affirmatively any meaningful state of facts under which defendants might be entitled to a verdict of no cause of action in accordance with their primary theory of defense.

Mindful of the general and important principle that instructions of the court must be considered as a whole and not by fragments, Allers v. Bohmker, 199 F.2d 790, 792 (7th Cir. 1952), yet we have concluded that the deficiencies pointed out were such as to tend to mislead the jury, especially in view of plaintiff’s testimony tending to indicate that she independently controlled at least some major trades, related errors of the court, in the exclusion of evidence bearing upon her trading objectives and prior experience, and the rule that both parties are entitled to have their respective theories of a case fairly presented to the jury. Florists' Nationwide Tel. Del. Net. v. Florists’ Tel. Del. Ass’n, 371 F.2d 263 (7th Cir.), cert. denied, 387 U.S. 909, 87 S.Ct. 1686, 1691, 18 L.Ed.2d 627 (1967); Wetherbee v. Elgin, Joliet & Eastern Ry. Co., 191 F.2d 302, 311-312 (7th Cir. 1951); Halladay v. Verschoor, 381 F.2d 100, 113 (8th Cir. 1967).

Defendants contend that the court erred in telling the jury that “ . . . [c]ontrol sufficient to warrant protection may be inferred from the evidence that Hetty Fey invariably relied on Robert A. Spira’s recommendations, if you find in fact that she did so rely upon Robert Spira’s recommendations.” If interpreted as an assumption that in making all of her investment decisions she acted only upon recommendations of Spira, this instruction would be clearly erroneous as assuming facts not shown by the record, and in fact contrary to the evidence; if interpreted as meaning that if the jury found that plaintiff followed Spira’s recommendations to the extent recommendations were made by him this could be considered on the issue of control, the instruction would have been more in keeping with the evidence, although not completely so. That the word “invariably” could lead to misinterpretation by the jury is confirmed by the transcript of pre-instruction discussion during which the court at first indicated that it would not use the term and later changed its mind in view of the difficulty of finding a substitute expression that satisfied the parties. Any such invitation to the jury to accept facts having no support in the evidence or involving likelihood of misinterpretation in this respect no doubt will be avoided upon retrial.

Plaintiff relied at least in part upon the alleged abuse by Spira of a fiduciary relationship for her claim of the churning of a controlled account. It is defendants’ contention that the mere existence of a broker-customer relationship did not itself give rise to a fiduciary relationship and that the existence of that relationship involved a fact which plaintiff had to establish by “clear and convincing evidence”. While the court gave that portion of Walston’s requested instruction defining such a relationship, it refused to include a second paragraph which would have told the jury that “where such a relationship is sought to be established by parole evidence the proof must be clear, convincing and so strong, unequivocal and unmistakable as to lead to but one conclusion.” Defendants say that the refused instruction embodies prevailing Illinois law as illustrated by Lahman v. Gould, 82 Ill.App.2d 220, 226 N.E.2d 443 (1967). The mere existence of a broker-customer relationship is not proof of its fiduciary character, but on a disputed record the issue remains one of fact. See Avern Trust v. Clarke, 415 F.2d 1238 (7th Cir. 1969), cert. denied, 397 U.S. 963, 90 S.Ct. 997, 25 L.Ed.2d 255 (1970), supra. Cf. Stevens v. Abbott, Proctor & Paine, 288 F.Supp. 836 (E.D.Ya.1968). We do not regard the state rule on burden of proof controlling where, as here, the issue was a mere phase of a larger problem dependent upon the application of federal securities law. We hold that the usual preponderance of evidence test governed even though the relationship of the parties, fiduciary or otherwise, pertained to that problem. Cf. Stevens v. Abbott, Proctor & Paine, 228 F.Supp. 836 (E.D.Va. 1968), supra.

Appellants assert that the court erred in refusing to instruct the jury on the defenses of waiver and estoppel. These defenses are available under the Securities Exchange Act upon sufficient showing. Landry v. Hemphill, Noyes & Co., 473 F.2d 365 (1st Cir.), cert. denied, 414 U.S. 1002, 94 S.Ct. 356, 38 L.Ed.2d 237 (1973); Royal Air Properties, Inc. v. Smith, 312 F.2d 210 (9th Cir. 1962); ibid, 333 F.2d 568 (9th Cir. 1964), including claims for churning, Carr v. Warner, 137 F.Supp. 611 (D.Mass.1955); Nash v. J. Arthur Warner & Co., 137 F.Supp. 615 (D. Mass.1955). Plaintiff admitted at the trial that she received through the mail written confirmations concerning every trade made on her behalf and that thereafter many, if not all, that she had not specifically authorized in advance were discussed with Spira. There was general testimony from Spira that all trades were authorized in advance either by plaintiff personally or by her son while the power of attorney was in force. The affirmative defenses of waiver and es-toppel were not pleaded as required by Rule 8(e), Fed.R.Civ.P. However, if proof tending to establish such defenses was received without objection, defendants’ answer could be deemed amended to conform to such proof. Rule 15(b), Fed. R.Civ.P.

There are two reasons to support the view that the trial court did not commit prejudicial error in refusing defendants’ requested instruction on the subjects. The requests themselves did not fully or fairly state the applicable law; and any issues of estoppel and waiver were so merged with the issue of control in the special circumstances of this case as to have rendered their separate treatment redundant, if not confusing.

To create an estoppel some reliant change in position by the one claiming the estoppel is essential, and waiver presupposes knowledge of one’s rights and an intent to relinquish them. Royal Air Properties, Inc. v. Smith, 333 F.2d 568 (9th Cir. 1964), supra,. Mere failure to read statements and confirmations, or to object to actions revealed therein, could not be deemed sufficient as a matter of law to establish waiver or to raise an estoppel in view of plaintiff’s theory of fiduciary relationship and related impositions by defendants. Express consent to churning transactions would not necessarily raise these defenses if such consent were induced by the undue influence of a fiduciary. Indeed, it has been said that transactions initiated by the customer themselves may be indicative of churning where the trust and confidence of the customer vest control in the broker. Moscarelli v. Stamm, 288 F.Supp. 453 (E.D.N.Y.1968).

The vice of churning is not to be localized within a particular transaction. It is the aggregation of transactions excessive in number and effect which constitutes the gravamen of the complaint. One consenting to a particular sale may not by that token agree to a proliferation of similar sales, especially if dealing with a fiduciary in whom there is the right to repose confidence. On the other hand, lack of knowledge of various rights may not be supportive of, or even germane to, the claim of one who independently initiates, or freely and fairly approves, a series of transactions which would constitute churning if induced by an agent for fraudulent purpose. In neither of these circumstances would there seem to be any separate significance of estoppel or waiver as such. Of course if a person experienced in trading and not subjected to undue influence, confirms, as consistent with his own desires to speculate, a series of transactions made on his account, even though initiated in whole or in part by a salesman to enhance his commissions, and thus leads the latter to continue the practice by further transactions similarly approved by his principal, a classic case of ratification, waiver or estoppel may be more readily perceivable. Cf. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bocock, 247 F.Supp. 373 (S.D.Tex.1965); see also 2 Bromberg, Securities Law: Fraud, § 8.4(651-654), p. 204.246-204.255 (1971). Even then, however, the problems of fiduciary relationship, independent action, ratification, undue influence, and control may be so commingled as to make their separate treatment more confusing than instructive.

Under the peculiar circumstances of this case and on the record made below, we believe that proper submission of the issues framed by the complaint and the general denials would have permitted the jury fairly to consider whether any excessive trading was attributable to the defendants by reason of the usurpation or abuse of authority or undue influence arising from a fiduciary relationship, or whether the plaintiff was independently motivated to excessively trade as dictated by her own objectives and desires. As a part of such inquiry the jury of course would be authorized to consider the extent to which the evidence disclosed plaintiff’s independent action or directions, her previous and continuing trading experience, her trading objectives, desires and needs, her reaction to statements and confirmations of trades made on her behalf, and all other surrounding facts and circumstances relevant and material to these questions to the extent revealed by the evidence. In this view, as we have indicated, the failure of the court to involve the jury in the intricacies of estoppel and waiver, as such, was not in and of itself prejudicial. This is especially so in view of our holding, later to be discussed, that the court should have instructed the jury that there could be no recovery for losses on trades independently initiated or knowledgeably approved by plaintiff free from any breach of fiduciary duty on the part of the defendants.

Defendant Walston also complains on the ground that the court failed adequately to instruct the jury as to the statutory defense provided by Section 20(a) of the Securities Exchange Act through specific reference to the statute itself. The court did tell the jury that if it found there was “churning” of plaintiff’s account by Spira, and Wal-ston did not maintain a reasonably adequate system of internal supervision and control over Spira or did not enforce with any reasonable diligence such system but on the contrary indirectly induced, participated in or approved and accepted the benefits of any excessive trading found, then it could find that Walston did not act in good faith within the meaning of the Securities Exchange Act and was liable for the damages caused by such excessive trading. The court omitted to expressly instruct the jury, as requested by Walston, that the latter was sued “under 20(a) of the Securities Exchange Act of 1934”, to read the jury its text concerning defenses available to controlling persons, and to further charge that if as a controlling person Walston did not directly or indirectly induce the unlawful acts and acted in good faith, it would not be liable.

In' view of the extension of the general respondeat superior doctrine by Section 20(a) of the Securities Exchange Act of 1934 and its counterpart in the Securities Act of 1933, 15 U.S.C. § 77o, courts have tended to emphasize the “control” aspects of vicarious liabilities in the securities context. For example, a manager, an officer and stockholder, or a director, has been held to be a person controlling a corporation or other entity and thus liable for its frauds; and the direction of the transmittal of responsibility frequently has been reversed by a holding that a corporation or other entity is a controlling person and subject to liability for conduct of an agent, representative or correspondent, even though the law of agency itself might or might not sustain such liability. This court has resorted to the Securities Acts in the latter connection to reinforce conclusions reached on the more general ground.

But Section 20(a), or the “control” doctrine in general, has not preempted or restricted operation of general rules in the securities field. We see nothing so peculiar in the relationship between the broker and its representative on the record here to preclude the application of the common law principle. Walston, in view of the doctrine of respondeat superior, obtained a more favorable instruction through even general reference to the Section 20(a) defense than it was entitled to, and is in no position to complain.

Here the evidence reveals that the acts of Spira, legal or illegal, were done within the scope of the business he was employed to carry out. Walston’s answer admits Spira “was one of its officers and registered representative” of its Chicago office. The evidence indicates that the defendants shared in the commissions involved. Spira was not engaged in any undertaking or conspiracy of his own, but was involved in the general type of activity which was expected of him — the handling of trading accounts for others on commission. Under such circumstances we hold that the general law rendered the broker liable for any churning conduct by its representative, and foundation for this result need not be sought within the confines of Section 20(a). Securities & Exch. Com’n v. First Securities Co. of Chicago, 463 F.2d 981 (7th Cir.), cert denied, McKy v. Hochfelder, 409 U.S. 880, 93 S.Ct. 85, 34 L.Ed.2d 134 (1972), supra; Moscarelli v. Stamm, 288 F.Supp. 453 (E.D.N.Y.1968); Johns Hopkins University v. Hutton, 297 F.Supp. 1165 (D.Md.1968), aff’d in part, reversed in part, 422 F.2d 1124 (4th Cir, 1970). Cf. Sennott v. Rodman & Renshaw, 474 F.2d 32 (7th Cir.), cert. denied, 414 U.S. 926, 94 S.Ct. 224, 38 L.Ed.2d 160 (1973). In the present case there was more than the kind of “apparent” authority held by the Supreme Court to warrant recovery against a principal in a Rule 10b-5 case. Affiliated Ute Citizens v. United States, 406 U.S. 128, 154, 92 S. Ct. 1456, 31 L.Ed.2d 741 (1972).

Pursuant to Spira’s request the court gave a missing witness instruction but over defendants’ objection substituted the phrase “of no aid” for the requested word “adverse”. Defendants argue that by such modification prejudicial error was committed. We agree.

There was evidence tending to establish the prerequisites of a missing witness instruction with respect to plaintiff’s son, Barry Fey. Mrs, Fey testified in effect that her son was available to her as a witness; yet he was beyond the subpoena power of the defendants.

There were indications that he could have thrown significant light upon the crucial question whether he initiated under the power of attorney from his mother many of the trades of which she complained, or he may have been able to confirm her testimony that the power of attorney was intended and utilized by him only for a single occasion. Failure to produce her son under the circumstances reasonably would permit an inference that if called his testimony would have been unfavorable to plaintiff’s position. Graves v. United States, 150 U.S. 118, 14 S.Ct. 40, 37 L.Ed. 1021 (1893); United States v. Conforti, 200 F.2d 365, 369 (7th Cir. 1952), cert. denied, 345 U.S. 925, 73 S.Ct. 782, 97 L.Ed. 1356 (1953); Neidhoefer v. Automobile Ins. Co. of Hartford, Conn., 182 F.2d 269, 270-271 (7th Cir. 1950); Wesson v. United States, 172 F.2d 931, 936 (8th Cir. 1949); United States v. Beekman, 155 F.2d 580, 584 (2d Cir. 1946). See also 2 Devitt and Blackmar, Federal Jury Practice and Instructions, [¶] 71.18, pp. 140-41. The trial court seemed to realize that by modifying the usual instruction it was straining. As given, the instruction could have been more prejudicial than failure to give any instruction at all on the subject, since in one of its possible interpretations it could have reassured jurors wondering about plaintiff’s failure to call the son that his testimony would have been merely “of no aid” although not necessarily adverse to plaintiff’s case in view of the sufficiency of plaintiff’s other evidence. Any such interpretation would have been accentuated by another instruction in which the court told the jury that “the law does not require any party to call as witnesses all persons who may have been present at any time or place involved in the case, or who may appear to have some knowledge of the matters in issue at this trial. tf

We find no merit in defendants’ objection to the court’s use in its instructions of the term “expert witness” rather than “accountant”, in referring to Corbett and his charts.

IV

Defendants assert that the court erred in its instructions on the measure of damages, having charged without qualification that market losses as well as lost profits by way of interest were recoverable if a verdict was returned in plaintiff’s favor. The jury obviously fixed damages on the basis of the computations of plaintiff’s expert witness— rounding off a mere $5.60. It is the defendants’ position that if any damages were recoverable the “quasi-contractual” measure utilized in Hecht v. Harris, Upham & Co., supra; Stevens v. Abbott, Proctor & Paine, 288 F.Supp. 836 (E.D.Va.1968); and Newkirk v. Hayden, Stone & Co., CCH Fed.Sec.L.Rep. ¶ 91,621 (S.D.Cal.1965), should have been applied and damages thereby limited to commissions. Additional complaint is made that the effect of the charge was to permit the award of losses plaintiff suffered as a result of market action in securities which defendants did not recommend, and in some instances advised against, and which were independently initiated by plaintiff or by her son under power of attorney.

Plaintiff would have the damage instruction sustained on the basic premise that churning is a unified offense to be established and recompensed not on evidence of individual transactions but by the extended course of operations. The court’s adoption of “the out-of-pocket theory”, she says, was in keeping with the modern enlightened view, citing “Churning by Securities Dealers”, 80 Harvard Law Review, 869, 884 (1967), supra, and its thesis that the amount of commissions only may bear no relationship to the amount of losses suffered by a customer from churning.

In an uncomplicated churning case, where a general discretionary power is abused merely to generate commissions, or where through breach of fiduciary duty a broker induces a trusting customer~to generally overtrade, we think the plaintiff’s position may be the sounder one. A broker’s zeal to make commissions undeniably may cause damage unrelated in amount to what he earned as commissions. Hecht v. Harris, Upham & Co., 430 F.2d 1202, supra,, dissenting opinion, 1212-1213; see also “Churning by Securities Dealers,” 80 Harvard Law Review, 869, 884 (1967). The difficulty here, already adverted to in another connection, is that uncontradicted testimony from plaintiff herself indicated that certain transactions which patently were considered in the jury verdict and which furnished the basis of a considerable portion of plaintiff’s loss calculations, were independently instigated by the plaintiff. As it is, there can be no assurance that the jury did not determine that as to some of the most sizable transactions entering into the computation of damages the defendant had no part, either by way of initiation, inducement or encouragement.

It is now elementary that when precise damage measurements are precludéd by wrongful acts, the wrongdoer cannot insist upon exact measurements and the precise tracing of causal lines to an impractical extent; fair approximations are in order. But the unified nature of the typical churning offense does not. render the element of causation immaterial. Granting that transaction by transaction appraisals in churning cases often will be inconsistent with the unified nature of the offense, or impractical and sometimes unfair, see “Churning of Securities Dealers”, supra, at p. 884, the facts here are exceptional. Where, as here, there is strong indication that certain substantial damage components arose independent of the acts or conduct of the defendants, they may not be lumped in for the jury’s consideration without at least affording some guide by which they can be eliminated from consideration upon a determination that, indeed, the defendants had nothing to do with them. In this respect the court erred.

It is a closer question whether Spira’s motion for remittitur of damages should not have been granted at least to the extent of the Crucible Steel stock component if not as to Syntex losses. There is some evidence that while all Syntex purchases were initiated by plaintiff or her son, certain sales of this stock were not. There is also indication in the record that Spira cooperated in the Crucible Steel transaction, the only difference of opinion between him and plaintiff being whether it should have been paid for by the loan as made or at least in part by the sale of plaintiff’s other stock. The motion for remittitur, not joined in by Walston, was presented by Spira below as an alternative to a new trial and here would be moot should a new trial be granted. Our remand is to this effect.

Finally, it is the defendants’ contentions that certain items of cost were improperly taxed and that the court erred in entering judgment against them for attorneys’ fees. Included in the $18,227.04 costs awarded by the court were the sum of $1,700 for plaintiff’s expert witness, expenses of an accountant in the amount of $142, and of an illustrator-diagramer for $50, court reporter expenses for attendance at, and transcribing, pre-trial depositions, and attorneys’ fees of $15,660, all of these items being questioned by defendants. The trial court made no findings concerning any special justification for these costs.

Neither the accountant nor the illustrator-diagramer appeared as witnesses, although their work-products were utilized by plaintiff at the trial. The pre-trial depositions were not introduced in evidence but represented usual and justifiable preparation. Within the range of items of cost recognized by law, trial courts have broad discretion, especially where factual evaluations are involved. United States v. Kolesar, 313 F.2d 835 (5th Cir. 1963). See also Gordon v. Illinois Bell Telephone Company, 330 F.2d 103 (7th Cir.), cert. denied, 379 U.S. 909, 85 S.Ct. 197, 13 L.Ed.2d 182 (1964). The allowance of these items was not clearly erroneous. See Farmer v. Arabian American Oil Co., 379 U.S. 227, 235, 85 S.Ct. 411, 13 L.Ed.2d 248 (1964); W. F. & John Banes Co. v. International Harvester Co., 145 F.2d 915 (7th Cir. 1944), cert. denied, 324 U.S. 850, 65 S.Ct. 687, 89 L.Ed. 1410 (1945); Federal Savings & Loan Ins. Corporation v. Szarabajka, 330 F. Supp. 1202 (N.D.Ill.1971); Kaiser Industries Corp. v. McLouth Steel Corp., 50 F.R.D. 5 (E.D.Mich.1970);Z H. C. Baxter & Bro. v. Great Atlantic & Pacific Tea Co., 44 F.R.D. 49 (D.Maine 1968); 6 Moore’s Federal Practice ¶ 54.77[4], pp. 1718-25 (1972). The award of an expert witness fee beyond the statutory allowance was unauthorized on the record. Henkel v. Chicago, St. P., M. & O. Ry. Co., 284 U.S. 444, 52 S.Ct. 223, 76 L.Ed. 386 (1932); Gerber v. Stoltenberg, 394 F.2d 179 (5th Cir. 1968); Sather v. General Electric Company, 394 F.2d 179 (9th Cir. 1968); United States v. Kolesar, 313 F.2d 835 (5th Cir. 1963), supra,; Sperry Rand Corporation v. A-T-O, Inc., 58 F.R.D. 132 (E.D.Va.1973); Hill v. Gonzalez, 53 F.R.D. 1 (D.Minn.1971).

We have concluded that the award of attorneys’ fees cannot be sustained since this case does not present the “overriding considerations of justice” referred to, nor does it fall within the limited exceptions to the contrary general rule reviewed in Walker v. Columbia Broadcasting System, Inc., 443 F.2d 33 (7th Cir. 1971). See also Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967); Chaney v. Western States Title Insurance Company, 292 F.Supp. 376 (D.Utah 1968); Stevens v. Abbott, Proctor & Paine, 288 F.Supp. 836 (E.D.Va.1968). Cf. First National Bank in Sioux Falls v. Dunham, 471 F.2d 712 (8th Cir. 1973); Kahan v. Rosentiel, 424 F.2d 161 (3d Cir.), cert. denied, 398 U.S. 950, 90 S.Ct. 1870, 26 L.Ed.2d 290 (1970).

The judgment of the district court is reversed and the cause is remanded for a new trial.

      . In general “churning” signifies in the securities business the practice by a broker of advancing his own interest (his commissions based on trading volume) without regard to his customer’s objectives by a course of trading which is excessive in light of the size and character of the customer’s account.

      . The code citation inadvertently appeared in the complaint as 78j.

      . Proscribing “[t]ransactions of purchase or sale which are excessive in size or frequency in view of the financial resources and character of such account.”

      . We have not included appellants’ original contention that Local District Court Rule 23 permitting six member juries was invalid and hence that the district court erred in refusing to empanel a twelve member jury. Appellants conceded during oral argument that the intervening decision of the Supreme Court in Colgrove v. Battin, 413 U.S. 149, 93 S.Ct. 2448, 37 L.Ed.2d 522 (1973), in effeet resolved this issue against her contention, it having been held that a twelve member jury is not required by the Seventh Amendment to the Constitution of the United States, nor by 28 U.S.C. § 2072, or Rule 48, Fed.R.Civ.P.

      . Certain additional allegations concerning personal gain by defendant Spira beyond commissions need not be referred to further in view of the absence of any supporting proof.

      . Mr. Enright: “. . . As it became very amply clear during the just-now-concluded conference, it appears that this is what we call a churning case; and the claim of the plaintiffs (sic) is not so much that this individual stock was sold or that stock, but that the volume of trading was induced by the broker and the brokerage house to produce commissions and income. The matter at issue is: Was the customer induced to trade in a volume beyond her means to generate commissions; or was this the product of her own and the person she selected to manage the account during the period of time — a person not connected with Walston Company — was it their idea. Did they want to trade, did their wishes and desires produce this volume.”

      . “Q. (By counsel for plaintiff) : What was your intention at the time you purchased those shares? [The 700 shares of Crucible Steel stock.]
      “Mr. Conger: I’m going to object unless it is shown that this was somehow—
      “The Court: As to what her purpose was?
      “Mr. Conger: Well, unless it was communicated in some way. I mean, how can that affect the trades?
      “The Court: I think we do not need to go into motives now.”

      . See the late ease of Newburger, Loeb & Co., Inc. v. Gross, 365 F.Supp. 1364, 1371 (S.D.N.Y.1973).

      . Plaintiff’s No. 20. “If you find, from a preponderance of the evidence, that Hetty Fey so relied upon the recommendation of Robert A. Spira, that he did control the volume and frequency of transactions of Robert A. Spira (sic), abusing the confidence reposed in him, recommended and induced an excessive number of transactions, on which commission and profits were received without regard to the needs and objectives of Hetty Fey, that is if you find all that to be true, then there was a device, scheme or artifice to defraud within the meaning of the Securities and (sic) Exchange Act.”
      Plaintiff’s No. 22. “The court will now define the word ‘churning’:
      “ ‘Churning’, as that term has been discussed herein, involves bad faith and fraudulent purpose of the broker to derive a profit for himself, or itself, by disregarding the interest of his or its customer, and excessively trading in an account while he or it controls same. . . . ”

      . “Where such a relationship [fiduciary] does not exist as a matter of law and is sought to be established by parol evidence, the proof must be clear and convincing, and so strong as to lead to but one conclusion.” 82 Ill.App.2d at 231, 226 N.E.2d at 449.

      . “You are instructed tliat, if adequate opportunity was given to plaintiff to examine the confirmations and monthly statements of her security transactions with defendant, and if plaintiff failed to examine such confirmations and monthly statements, she cannot thereafter complain that she sustained damage by virtue of the nondisclosure of matters stated in the monthly statements or on the confirmations which she failed to examine.” (Request No. Q.)
      “You are instructed that if plaintiff examined confirmations and monthly statements which disclosed the transactions made in her account, and failed within a reasonable time to object to defendants about the transactions so disclosed to her, she is barred from thereafter complaining that she sustained damages by reason of such transactions.” (Request No. R.)
      “You are instructed that if plaintiff subsequently expresses to defendants her consent to any transaction in her account which she did not initiate, she is barred from thereafter complaining that she sustained damage by reason of such transaction to the same extent as if she had originally authorized it.” (Request No. S.)

      . 15 U.S.C. § 78t. “(a) Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.”

      . Kemmerer v. Weaver, 445 F.2d 76 (7th Cir. 1971).

      . Whittaker v. Wall, 226 F.2d 868 (8th Cir. 1955).

      . See Mader v. Armel, 461 F.2d 1123 (6th Cir.), cert. denied, 409 U.S. 1023, 93 S.Ct. 465, 34 L.Ed.2d 315 (1972).

      . See e. g., Hecht v. Harris, Upham & Co., 430 F.2d 1202 (9th Cir. 1970), supra; Richardson v. MacArthur, 451 F.2d 35 (10th Cir. 1971) ; Lorenz v. Watson, 258 F.Supp. 724 (E.D.Pa.1966) ; Hawkins v. Merrill, Lynch, Pierce, Fenner & Beane, 85 F.Supp. 104 (W.D.Ark.1949). Perhaps reliance by the SEC upon the control theory in disciplinary actions against brokers for acts of their salesmen, where “wilfullness” must be shown to justify revocation of licenses, has tended to extend reliance upon Section 20 of the Act in other contexts. See Reynolds & Co., et al., 39 SEC 902 (1960) ; R. H. Johnson & Co., 36 SEC 467 (1955), aff’d per curiam sub nom, R. H. Johnson & Co. v. SEC, 97 U.S.App.D.C. 364, 231 F.2d 523, cert. denied, 352 U.S. 844, 77 S.Ct. 48, 1 L. Ed.2d 60 (1956) ; Merrill, Lynch, Pierce, Fenner & Beane, 31 SEC 494 (1950).

      . Securities & Exch. Com’n v. First Securities Co. of Chicago, 463 F.2d 981 (7th Cir.), cert. denied, McKy v. Hochfelder, 409 U.S. 880, 93 S.Ct. 85, 34 L.Ed.2d 134 (1972). Chief Judge Swygert first treated the question of liability under the general rules of agency and then dealt with Section 10(b) liability by virtue of the federal controlling person rule.

      . See R. H. Johnson & Co. v. Securities & Exchange Com’n, 198 F.2d 690 (2d Cir.), cert. denied, 344 U.S. 855, 73 S.Ct. 94, 97 L.Ed. 664 (1952) ; and Norris & Hirshberg v. Securities & Exchange Com’n, 85 U.S.App.D.C. 268, 177 F.2d 228 (1949), which recognize that the mere existence of remedial provisions in the Securities Acts does not foreclose the application of similar common law remedies, and also that the converse is true: A statutory remedy may be invoked in a given situation even though the proof is insufficient to sustain a corresponding common law remedy. Indeed, the recognized policy of public protection requires the two types of remedy to be complementary, rather than mutually exclusive.

      . As was said in another case where the trial court had based recovery upon a restrictive doctrine akin to the control section of the Acts:
      “ . . . Since the language of the statute is less restrictive than the court’s instruction, the statute encompasses the direction given, and no prejudice to appellant could have resulted. Of. 3 Loss 1808-11. Furthermore, under common law principles, a principal is liable for the deceit of his agent committed in the very business he was appointed to carry out. This is true even though the latter’s specific conduct was carried on without knowledge of the principal. See Oddo v. Interstate Bakeries, Inc., 271 F.2d 417, 423 (8 Cir. 1959).” Myzel v. Fields, 386 F.2d 718, 738 (8th Cir. 1967), cert. denied, 390 U.S. 951, 88 S.Ct. 1043, 19 L.Ed.2d 1143 (1968).

      . “If a party to this case has not produced a witness within his or her power to produce, you may infer that the testimony of the witness would be of no aid to that party if you believe each of the following elements. 1)

      . The record indicates that he lived in Colorado, and was thus beyond the 100 mile subpoena power of defendants. Buie 45(e)(1) Fed.R.Civ.P.

      . In earlier discussion of Spira’s request on the subject which was in the usual form and having indicated that he would charge ac-
      cordingly the jury with slight modification, the court commented: “If I don’t, I think I may be in error.” After the court made the substitution now complained of by defendants, the following occurred:
      Spira’s Counsel: “Your Honor, for the record, the substitution of the words ‘of no aid’ for ‘adverse’ do not correctly state the law, and the defendant Bobert Spira objects to that modification.
      “The Court: Objection noted and overruled. . . . That is as much as I can soften it up.”

      . The testimony of an expert witness and any charts or summaries prepared by him . . . are received for the purpose of explaining facts disclosed by books, records and other documents which are in evidence in the case. However, such charts are not in and of themselves evidence or proof of any facts. If such charts or summaries do not correctly reflect facts or figures shown by the evidence in the case the jury shall disregard them.

      . “. . . In arriving at the amount of [any] award, you should include amounts lost while her account was with Walston and Co., Inc., and any damages suffered by the plaintiff because of lost profits; that is to say, profits which the plaintiff would have made but for violation by defendants of the Securities Act and Securities Exchange Act.
      “In arriving at the amount of any loss of profits sustained by plaintiff, the jury are entitled to consider interest earnings that plaintiff could have received at a bank or other savings institutions, as well as any other evidence bearing in the case upon the issue.”

      . Plaintiff’s claim, based on Corbett’s testimony, included $15,565.60 actual damages, composed of (a) losses totaling $11,731.61 (the commission charges of $3,573.06, interest of $885.04 paid to finance stock purchases, and market action net loss of approximately $7,273), together with (b) interest on the amount in (a) above at the prevailing rate for bank savings deposits in the sum of $3,834.99. When counsel for plaintiff asked the jury, during closing argument, to award $50,000 damages, the trial court sustained defendants’ objections with the following comment:
      “Objection sustained . . . Ladies and gentlemen of the jury, the maximum damages, as I see it, as the law is here, is the $15,400 — what is it? . . . $15,565. You are not bound by cents, anyhow, but that is the maximum damages, as I believe the law is. I have to sustain the objection.”

      . By this we do not mean to indicate that some other measure of damages should not be considered by trial courts in appropriate cases — loss-of-bargain recovery, for example. See “Churning by Securities Dealers”, 80 Harvard Law Review, 869, 884 (1967), supra. We think there may be merit to the view that the traditional discretion left to trial courts should be heavily relied upon while the law in this area remains largely uncharted. Ibid at p. 885. And it seems unlikely that a rule can be designed to cover all combinations of fact and their complications beyond the generalization that damages should compensate the customer by fair approximation for the losses sustained as a proximate result of unlawful churning.

      . The motion specified the unrealized loss of $2,528.75 on plaintiff’s purchase of 700 Crucible Steel shares plus a proportionate share of awarded interest; and a loss of $3,921.43 on a day trade in Syntex with a proportionate share of the awarded interest.

      . In his brief on appeal counsel says: “Spira also requested, as an (inadequate) alternative to a new trial, the remission of excessive elements in the damages. While the adequate remedy for these, and other, errors would be a new trial, Spira respectfully draws attention to the remission request.

      . The two statutory provisions for awarding attorney’s fees in securities eases cited in Fleischmann at 721, n. 17 are not applicable in this ease.