author: FRANK GRAY, Jr., District Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Cletus Lester DAVIS, Defendant-Appellant.
    No. 74-1130.
    United States Court of Appeals, Sixth Circuit.
    Nov. 8, 1974.

      Frederick J. McGavran, Kyte, Conlan, Wulsin & Vogeler, Cincinnati, Ohio (Court-appointed), for defendant-appellant.
    William W. Milligan, U. S. Atty., Byron E. Trapp, John J. Cruze, Cincinnati, Ohio, for plaintiff-appellee.
    Before CELEBREZZE and MILLER, Circuit Judges, and GRAY, District Judge.

       The Honorable Frank Gray, Jr., Chief Judge, United States District Court for the Middle District of Tennessee, sitting by designation.

   FRANK GRAY, Jr., District Judge.

The appellant in this case was charged in a three-count indictment with wilfully and knowingly failing to perform a duty required of him under the Military Selective Service Act of 1967 and the rules, regulations, and directions promulgated thereunder, in violation of 50 U.S.C. Appendix § 462(a). In Count One, he was charged with failing to comply,- on December 10, 1970, with an order of his local draft board to report for an Armed Forces physical examination ; in Count Two, with failing to comply, on or about December 10, 1970, with an order of his local board to keep the board advised of his current address; and, in Count Three, with failing to comply, on February 3, 1971, with an order of his local board to report for induction into the Armed Forces of the United States.

At his jury trial in the District Court, the appellant moved for a judgment of acquittal on all three counts at the close of the Government’s case. The Trial Court granted the motion as to Counts One and Three, holding that these were inconsistent with the offense charged in Count Two. The motion as to Count Two was denied, and, following the appellant’s election not to offer any evidence, the charge of failing to keep the board advised of a current address was submitted to the jury. The jury returned a verdict of guilty, and the appellant seeks review of that conviction.

The principal issue for review is whether the evidence adduced at trial is sufficient to sustain the appellant’s conviction. The evidence to be considered comes to the Court by agreement of the parties pursuant to Rule 10(d) of the Federal Rules of Appellate Procedure. It consists almost exclusively of documents from the appellant’s Selective Service file, authenticated by the Secretary of Local Draft Board Number 311. These documents are: (1) the Minutes of actions by the Local Board (merely a chronological listing of the actions taken by the Board with respect to Appellant) ; (2) a Report of Information (SSS Form 119), dated September 16, 1970, concerning the appellant; (3) a Current Information Questionnaire (SSS Form 127) filled out by the appellant on September 16, 1970; (4) a Report of Information, dated September 23, 1970, concerning the appellant; and (5) three envelopes with letters mailed by the board to the appellant in care of his mother, which show respective mailing dates of September 18, 1970, November 18, 1970, and January 18, 1970, and which were returned by the Post Office, respectively on September 23, 1970, November 30, 1970, and January 12, 1970. The contents of these documents, i. e., the facts presented to the jury on the charge in question, are set forth below in narrative form and in chronological sequence, commencing with July 29, 1970.

The board’s Minutes reflect that an Order to Report for Physical Examination (SSS Form 223) was mailed to the appellant on July 29, 1970. The next entry on the Minutes shows that the “SSS Form 223 [was] returned by [the] Post Office on July 31, 1970.” A notation presumably relating to this return was excluded as hearsay by the Trial Court. On August 4, 1970, the Order to Report for Physical Examination was re-mailed to Appellant, in care of his mother’s address, 8942 Applewood (Cincinnati, Ohio). The succeeding entry, dated August 11, 1970, is “SSS Form 223 returned by Post Office.” It is likewise followed by a notation that was excluded as hearsay by the Trial Court. This entry is followed by one dated September 2. 1970, indicating a Report of Information (SSS Form 119) was received by the board which, according to an additional notation, was the report of a call to the registrant’s (appellant’s) phone number. A further entry under the same date was crossed out.

The next entry on the Minutes of the board, dated September 16, 1970, and indicating receipt of SSS Form 129, is supplemented by documents that are before the Court, the September 16th Report of Information (SSS Form 119) and Current Information Questionnaire (SSS Form 127) of the same date, both of which are mentioned supra. The Report of Information form, filled out by someone at the board, discloses that the appellant called the board on September 16th, said that he had been out of town and had been told to contact the board. After being told he had been ordered to report for a physical examination and had not so reported, he informed the board that he would “ . . . come down and talk to [them] on 9/17/70.” Instead, as the date on the Current Information Questionnaire shows, he went to the board office on the 16th and completed the questionnaire. The information on that form shows, inter alia, that the appellant gave his “current mailing address” as 8942 Applewood (in care of his mother, Doris Petering), listed Mrs. Helen Stusman (791-7829) as a “person other than a member of your household who will always know your address,” noted his divorce, and listed his employer, from September 4, 1970, as “Natorp (Ken Hartman).” (Appellant’s entry in the “Education” section shows he completed the ninth grade.)

Within two days, the board mailed Appellant the first of the aforementioned three letters contained in the appellate record, an Order to Report for Physical Examination (on October 12, 1970) which was mailed to the appellant in care of his mother at 8942 Apple-wood. The board’s Minutes reflect this mailing and, by entry dated September 23, 1970, evidences the return by the Post Office of the form (which is shown by the letter and envelope to be the order mailed on the 18th). The additional entry on that date was excluded as hearsay, as were certain markings or entries on the envelope in question. The face of this envelope shows, in addition to the typed Applewood address, the handwritten address, “4927 Myrtle Ave., 45242,” as well as a “Return to Sender” Post Office stamp and the local board’s receipt stamp, dated September 23, 1970.

The next entry in the Minutes shows the September 23, 1970, receipt of another Report of Information, accompanied by the notation, “Contacted family —employer—friend for forwarding address,” with the remainder marked out, or excluded as hearsay. The Report of Information form of the same date, mentioned supra contains, in pertinent part, the following:

“Called Mrs. Stusman 791-7829
“Called mother’s house:
“Called Natorp:
“Mr. Hartman called:”

After each of the entries is a notation which was excluded by the Trial Court as hearsay and is therefore covered with tape. The entry on the Minutes of September 24, 1970, is that memo forms were sent to friends asking for a forwarding address. (There is no further entry in the Minutes concerning the fate of these “memo forms.”)

The second letter before the Court and the corresponding entry on the Minutes show that another Order to Report for Physical Examination was mailed to the appellant on November 18, 1970, in care of the address on Applewood. This letter was sent by Certified Mail and, as evidenced by the board’s stamp appearing on the envelope and the corresponding entry on the Minutes, was returned by the Post Office on November 30, 1970. A notation on the envelope and another in the Minutes likewise were excluded by the Trial Court.

An entry in the Minutes under the date, December 17, 1970, was excluded in toto at trial and is marked out.

The final relevant entries on the Minutes revolve about the date January 18, 1971. The first is “SSS Form 119 completed.” The briefs submitted by both sides contain the additional fact this form reported that calls were made to Keleh and Saylor, but that the responses to these calls were excluded by the District Judge as hearsay. The second entry for January 18, 1971, and the third letter presented to this Court reflect that an Order to Report for Induction (SSS Form 252) was mailed, on January 18, 1971, to the appellant at the Apple-wood address in Cincinnati. The last entry shows that this letter was returned to the board by the Post Office on January 21, 1971; the accompanying notation was excluded by the court. The envelope itself bears two taped-over portions, a “Return to Sender” Post Office stamp, and the local board’s receipt stamp, dated January 21, 1971.

The precise issue before the Court, therefore, is whether the foregoing evidence, viewed in the light most favorable to the Government together with all the inferences that may be fairly drawn, Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1944), is sufficient to sustain, on appeal, the appellant’s conviction for wilfully and knowingly failing to keep the local board advised of his current address.

As a preliminary consideration, it should be noted that, although two Selective Service regulations could possibly be applicable in a case of this genre, we are of the opinion that the language of the indictment and the Government’s treatment of the charge on appeal, compel the conclusion that only one of the two, 32 CFR § 1641.3, is applicable. See United States v. Secoy, 481 F.2d 225 at 226 (6th Cir. 1973). Section 1641.3 imposes a duty on a registrant to keep the board advised at all times of an address where mail will reach him. Thus, this regulation and the judicial interpretation of its requirements provide one of the standards against which the facts at bar must be measured. The most quoted articulation of this standard is found in the following passage from the Supreme Court’s opinion in the case of Bartchy v. United States, 319 U.S. 484, at pp. 488-489, 63 S.Ct. 1206, at p. 1208, 87 L.Ed. 1534 (1943):

“We think the Government correctly interprets the Act, section 11, and the regulation, section 641.3, not to require a registrant who is expecting a notice of induction to .remain at one place or to notify the local board of every move or every address, even if the address be temporary. The Government makes the point, however, that a registrant with knowledge, as here, of the imminence of the posting of the notice is ‘plainly obligated to keep in close communication with the forwarding address.’ If this suggestion is meant as a rule of law that at his peril the registrant must at short intervals inquire at his last address given to the board, . . . , or at his own forwarding address, . . . , we are of the view that the Government demands more than the regulation requires. The regulation, it seems to us, is satisfied when the registrant, in good faith, provides a chain of forwarding addresses by which mail, sent to the address which is furnished the board, may be by the registrant reasonably expected to come into his hands in time for compliance.”

In abbreviated form, this has been denoted the “good address” requirement. Kokotan v. United States, 408 F.2d 1134 (10th Cir. 1969).

Attendant to this standard is the requirement that the local board be shown to have attempted contact with the registrant through persons such as family, friends, or employers, whose names have been furnished by the registrant. 32 CFR § 1642.41(b); United States v. Burton, 472 F.2d 757 (8th Cir. 1973), cf. Ward v. United States, 344 U.S. 924, 73 S.Ct. 494, 97 L.Ed. 711 (1953); Venus v. United States, 287 F.2d 304 (9th Cir. 1961), reversed 368 U.S. 345, 82 S.Ct. 384, 7 L.Ed.2d 341.

In addition to proving that a defendant confronted with the charge sub judice failed to provide the board with a “good” address, the Government must prove that such failure was a “willful and knowing” failure, as charged in the indictment. In other words, the Government must prove intent, and, under the applicable decisions, this means proving “deliberate purpose” not to comply with the Act and regulations. United States v. Ward, supra. As this Court recognized in United States v. Booth, 454 F.2d 318 at 322 (6th Cir. 1972), this intent requirement, e. g., “evidence of bad faith and an affirmative endeavor to avoid delivery of the notice,” was also implicit in the Bartchy decision; and, although it has been pointed out that the facts in both Ward and Bartchy would support a finding in those cases that a good address had in fact been given (See: United States v. Secoy, supra, 481 F.2d at p. 227), subsequent decisions have cited, and have purported to follow, Ward and Bartchy in requiring evidence of intent. See: Venus v. United States, supra; United States v. Booth, supra; Gretter v. United States, 422 F.2d 315 (10th Cir. 1970); United States v. Read, 443 F.2d 842 (5th Cir. 1971).

It follows, then, that the sufficiency of the evidence at bar must be measured against a two-pronged standard: (1) the failure to provide the board with a “good” address at the time in question; (2) a “deliberate purpose” or “bad faith” on the part of the appellant in so failing.

Turning to an analysis of the evidence in this case, we find that it is limited to the appellant’s appearance at the local board office on September 16, 1970, and three sets of actions by the local board subsequent thereto. When the appellant appeared at the board offices, he completed a Current Information Questionnaire in which he listed his current address as 8942 Applewood, the name and phone number of one who would always know his whereabouts (Mrs. Stusman, 791-7829), his mother’s address (the same as his current address), and his employer (with the name of a man to contact there). It is to be noted that this information was in addition to information he had furnished the board on previous occasions.

Within two days of this visit, the board mailed appellant the first of a series of three letters, all to the 8942 Applewood address. The other letters were mailed on the eighteenth days of November and January, respectively. These letters show only that the board mailed letters to the appellant at that address, but do not show why they were returned. Consequently, the jury could only guess as to why, among several possible reasons, they were returned to the board.

In short, these returned letters, by themselves, do not show that a proper address had not been furnished the board; and, even if an inference in the Government’s favor were permitted here, we could scarcely conclude that this inference, without more, is sufficient to establish a necessary element in a criminal charge.

Second, the evidence shows that the board made calls to those persons listed on the appellant’s Current Information Questionnaire of September 16, 1970. On September 23, 1970, someone at the board called Mrs. Stusman’s number, the house of the appellant’s mother, and his employer, Natorp. There is no evidence, however, as to the results of these calls, except that it appears that Mr. Hartman (of Natorp) returned the board’s call. The evidence simply does not show whether the first three persons were actually contacted, whether they advised the caller of the appellant’s whereabouts, whether they claimed no knowledge of his whereabouts, or whether they refused to give the board any information at all. The answers to these questions are merely left to the jury’s imagination and, therefore, show neither that the appellant failed to provide the board with a good address through which he could have been contacted nor that the board fulfilled its duty to satisfy the “alternate address” requirement.

Finally, the record shows that “memo forms” were mailed to “friends.” Briefs of both parties agree that these “friends” were Kelch and Saylor. The response, if any, to such memos is not in the record. Both parties also agree that the naked entry on January 18, 1971, that “SSS Form 119 completed” was made to show that telephone calls were made to Kelch and Saylor. The results are also not in the record, having been excluded as hearsay; thus none of this information has probative value.

The foregoing being all of the relevant evidence, we find, therefore, that the Government’s proof failed to establish the first of the two standards to be met. Even if we were to find that the proof showed the appellant’s failure to satisfy the Bartchy criterion, which we cannot, it is impossible to conclude the evidence is sufficient to show that the alternate addresses given the board were not satisfactory or that the board met its duty to pursue the appellant through these addresses. Whether the appellant could have been contacted in time for compliance through the names and addresses he furnished the board is a factual issue upon which the jury could only speculate, and a criminal conviction based solely on this quantum of proof cannot stand. Given the insufficiency of the evidence as to the appellant’s alleged failure to provide a good address, it necessarily follows that such evidence cannot be deemed adequate to show that the appellant acted knowingly and wilfully.

These conclusions are further supported by the applicable case law. The Court's research and the briefs of the parties have disclosed a number of cases dealing with the sufficiency of evidence to sustain a conviction for failure to keep the local board advised of a current address. Without reciting the facts found and rulings made in these cases, we find it sufficient here to note that, in those cases where the evidence was held to be sufficient, there were critical facts and factors present which are absent here, such as explanations as to why letters were returned, the whereabouts of the defendant during the period specified, the statements or testimony of persons contacted by the board, and/or the testimony of the accused himself, from which the factfinder could legitimately draw inferences to support a finding of guilt, United States v. Booth, supra; United States v. Secoy, supra; United States v. Kokotan, supra; United States v. Gretter, supra; and, in most of the cases where convictions were reversed for insufficiency of evidence, the evidence to sustain a conviction was more substantial than that which is present here. United States v. Jackson, 469 F.2d 267 (9th Cir. 1972); United States v. Ebey, 424 F.2d 376 (10th Cir. 1970); United States v. Chudy, 474 F.2d 1069 (9th Cir. 1973); Venus v. United States, supra; Bartchy v. United States, supra, 319 U.S. p. 490, 63 S.Ct. 1206, dissenting opinion. A comparison of these decisions suggests that there is no authority under which this Court could sustain the instant conviction.

The foregoing decisions do indicate, however, that the failure here, perhaps, was in the proof adduced at trial and not in the proof marshaled by the local board. If the Government had substantiated its case so as to avoid the hearsay exclusion of notations on the letters and the results of the phone calls, e. g., had the Government offered proof tending to show the reasons why the board was not able to contact the appellant, its case would have taken on an entirely different light. In short, it would appear that the Government simply failed to make admissible evidence which apparently was available and which could have sustained the conviction. On this record, however, we hold that the Trial Court erred in denying defendant’s motion for judgment of acquittal. Accordingly, it is directed that such a judgment be entered.

Reversed with directions.

      . Following the verdict, appellant renewed his motion and it was denied.

      . The only other evidence presented was the testimony of an FBI Agent that he liad arrested ' the appellant in Los Angeles, California, on April 10, 1973. This arrest is so remote in time to the date specified in the indictment as to be without probative value and, therefore, will not be considered further.

      . In the record before the Court, those portions which were excluded by the Trial Court are either crossed out or taped over.

      . From the briefs filed herein, the Court is informed that the appellant, in April of 1969, had listed his current address as 4315 Kugler Mill, Cincinnati, and gave his phone number as 791-7829 and that, subsequently, he had given the board his address as 4927 Myrtle Avenue, Cincinnati. These facts, however, do not appear in the record submitted by the parties.

      . We are told in the brief submitted by counsel for the appellant that this call was made to phone number 791-7829 and that the results of that call were excluded by the Trial Court as hearsay. Again, this does not appear in the appellate record.

      . The entry on the Minutes is. “Divorced Unemployed.” This was obviously an error, since a reasonable interpretation of the completed questionnaire indicates that Appellant was employed.

      . Counsel lor the appellant, in liis brief, in forms us that these "friends” were Messrs. Keleh and Saylor whose names were furnished by the appellant in 1969.

      . Apparently, the order set December 10. 1970, as the • date for the examination and, presumably, this is the source of the date charged in the indictment.

      . Tbo other section, Section 1641.7(a), pertains to the duty to currently inform the local board of a “home address” and report to the board in writing every change in home address within ten (10) days of its occurrence. Inasmuch as the section is obviously inapplicable in this case, we need not reach the legality of its application in these circumstances.

      . We do not read our decision in United States v. Secoy as being in conflict with this view. While in Secoy this Court rejected a contention that Ward had restricted the Bartchy standard, the authority cited therein by the Court indicates that it was not vitiating the intent requirement, but merely rejecting a suggestion that Bartchy’s interpretation of Section 1641.3 liad not been restricted by Ward, a view with which we are in accord.

      . Note the distinction between the presumption that a letter properly stamped and mailed is delivered in due course, Flowers v. Aetna Casualty & Surety Co., 163 F.2d 411, 416 (6th Cir. 1947), and a presumption that a properly stamped and mailed letter is returned by the Post Office because the addressee cannot be reached at the address on the letter. Also, note the distinction as to the burden of proof between criminal and civil cases.

      . In this regard, it is to be noted that the calls to Mrs. Stusman, the appellant’s house, and Natorp were made on September 23, 1970, almost three months before the date specified in the indictment, December 10, 1970; and, while the Court cannot accept the appellant’s argument that the proof should have been restricted to within a few days of December 10th, Ledbetter v. United States, 170 U.S. 606, 18 S.Ct. 774, 42 L.Ed. 1162 (1898); United States v. Kokotan, supra, tlie Court is of the opinion that the time lapse does bear on the issue of the weight and sufficiency of the evidence, particularly on the question of whether the appellant failed to provide the board with an address where he could be reached. So considered, the already sparse evidence is further weakened.


source: Caselaw Access Project

author: BURNS, District Judge:

license: Public Domain

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Gregorio Rosario CAMACHO, Defendant-Appellant.
    No. 74-1995.
    United States Court of Appeals, Ninth Circuit.
    Nov. 5, 1974.

      Mitchell A. Stevens, Arriola, Cushnie & Stevens, Agana, Guam, for defendant-appellant.
    Duane Craske, U. S. Atty., Agana, Guam, for plaintiff-appellee.
    Before DUNIWAY and WRIGHT, Circuit Judges, and BURNS, District Judge.

       Honorable James M. Burns, United States District Judge, District of Oregon, sitting by designation.

   OPINION

BURNS, District Judge:

Appellant (Camacho) was convicted for making false statements (18 U.S.C. § 1001) resulting from his use of an invalid active duty military identification card. We are asked to decide whether his production of this card in response to a military security officer’s request for identification was a violation of Miranda v. Arizona, 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966).

Appellant Camacho received an Army discharge in February of 1972, at which time he was supposed to, but apparently did not, turn in his military I.D. Thereafter, he made use of the identification card to make purchases in a Naval Exchange store located on the Naval Air Station on Guam and also to obtain a Navy automobile identification decal. As a result of these falsifications, Navy security personnel became suspicious of Camacho. On June 17, 1973, Camacho was approached by several security officers while on the Naval Air Base. The Chief Naval Station Security Officer asked him to identify himself. Appellant responded by producing the invalid identification card, which was thereupon confiscated by the Security Officer on the basis that it was illegally possessed. Appellant was arrested only after he refused to accompany the officers voluntarily to the security office for questioning.

These circumstances do not require the warning against self-incrimination called for by Miranda. The Navy has a legitimate interest in maintaining the security of its installations. To protect that interest, security personnel may require a visitor to identify himself whether or not there are indications that he has committed a criminal offense. Thus the request that Camacho identify himself was proper, and once he produced an invalid military identification card in response to that request it was subject to immediate seizure as government property. The military acts within its rights when it forbids use of its property for purposes other than those for which it was provided and reclaims it when it is improperly used. Nor did circumstances require that Camacho be given Miranda warnings; he was not asked to produce the admittedly incriminating card, but merely to identify himself. Having chosen to identify himself with the illegally possessed card, he may not now be heard to complain that he was compelled to do so.

Miranda also requires that the Defendant be in custody or otherwise deprived of his freedom of action in some significant manner before a warning against self-incrimination need be given. Mere request for written identification of a person, even a suspect, by law enforcement or security officers, does not necessitate the giving of Miranda warnings. Factually, Camacho was not within the “custody” of the Naval Security Officials when he was asked to and did produce identification. Hence, his surrender of the card was not a violation of Miranda.

Finally, before the safeguards of the Fifth Amendment can apply, a testimonial rather than non-testimonial act must be involved. Production of a military identification card is not testimonial in the Miranda sense, but rather is more comparable to giving a handwriting exemplar, facing a line-up, or leaving one’s name and address at the scene of an automobile accident. Each of. these situations involves a non-testimonial identification of the Defendant that is constitutionally permissible. As this Court stated in United States v. Leal, 460 F.2d 385, 389 (9th Cir. 1972), “The identification of oneself is not self-incriminating and thus not protected by the Fifth Amendment.” For these reasons, we find that Camacho’s reliance on Miranda is unavailing.

Judgment affirmed.

      . Cf. United States v. Vaughn, 475 F.2d 1262 (10th Cir. 1973), stating, but not holding, that visitors on military installations are subject to full scale search in the interest of military security.

      . The back of the card contained the following warning: “WARNING: Issued for official use of the holder designated hereon. Use or possession except as prescribed is unlawful and will make the offender liable to heavy penalty — 18 U.S.C. 499, 506 and 701.”

      . “Property of the United States Government” is printed on the card itself.

      . Cf. Miranda v. Arizona, 384 U.S. 436 at 444, 86 S.Ct. 1602 (1966).

      . Schmerber v. California, 384 U.S. 757, 86 S.Ct. 1826, 16 L.Ed.2d 908 (1966).

      . Gilbert v. State of California, 388 U.S. 263, 87 S.Ct. 1951, 18 L.Ed.2d 1178 (1967).

      . United States v. Wade, 388 U.S. 218, 87 S.Ct. 1926, 18 L.Ed.2d 1149 (1967).

      . California v. Byers, 402 U.S. 424, 91 S.Ct. 1535, 29 L.Ed.2d 9 (1971).

      . We need not decide Appellant’s contention that production of the identification card was itself a crime which would differentiate it from the other examples of non-testimonial evidence which identify a defendant. Camacho was indicted for prior misuse of the identification card, not for falsely identifying himself to the Naval Security Officer.


author: LEVIN H. CAMPBELL, Circuit Judge.

text:
    SEVEN-UP BOTTLING COMPANY, OF BOSTON, INC., Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent.
    No. 74-1200.
    United States Court of Appeals, First Circuit.
    Argued Oct. 8, 1974.
    Decided Nov. 29, 1974.

      George H. Foley, Boston, Mass., with whom Hale & Dorr, Boston, Mass., was on brief, for petitioner.
    William H. DuRoss, III, Atty., Washington, D. C., with whom Peter G. Nash, Gen. Counsel, Irving M. Herman, Deputy Gen. Counsel, Patrick Hardin, Associate Gen. Counsel, and Elliott Moore, Deputy Associate Gen. Counsel, Washington, D. C., were on brief, for respondent.
    Before ALDRICH, McENTEE and CAMPBELL, Circuit Judges.
   LEVIN H. CAMPBELL, Circuit Judge.

The Seven-Up Bottling Company of Boston petitions this court to review an order of the National Labor Relations Board, and the Board cross applies for enforcement of its order directing the company to cease certain unfair labor practices and to bargain with the New England Joint Board, Retail, Wholesale & Department Store Union, AFL-CIO. The union had filed a representation petition with the Board on October 15, 1973, requesting certification as the bargaining representative of a unit consisting of the company’s distributors. After a hearing the Board’s regional director rejected the company’s contention that the distributors were “independent contractors” rather than “employees” under section 2(3) of the National Labor Relations Act, 29 U.S.C. § 152(3), and directed an election for a unit including the distributors and driver-salesmen. The company’s request for review was denied by the Board, and the union won the Board-ordered election by a vote of 27 to 3. Pursuing the accepted method for challenging before this court the Board’s determination that the distributors are employees, the company refused to bargain with the union. In the ensuing unfair labor practice proceeding, the Board found the company in violation of sections 8(a)(1) and (5) of the Act.

It is settled that the Board and courts are to apply general principles of agency law in distinguishing employees from independent contractors. NLRB v. United Ins. Co., 390 U.S. 254, 256, 88 S.Ct. 988, 19 L.Ed.2d 1083 (1968). In 1947 Congress passed an amendment to the Act specifically excluding independent contractors from the definition of “employee” so that determinations on this question would be based on ordinary tests of the common law rather than on the Board’s view of policy considerations embodied in the Act. H.R.Rep. No. 245, 80th Cong., 1st Sess., 18 (1947); H.R. Conf.Rep. No. 510, 80th Cong., 1st Sess., 32-33 (1947); 93 Cong.Rec. 6441-42 (June 5, 1947). At common law courts often have had difficulty deciding whether an individual is an employee or independent contractor in cases where a principal would be liable for acts of negligence in the performance of duties only if the acts were committed by an agent who is a servant. The right to control the manner of physical performance of the services — as opposed to control over the results sought — is generally determinative of employee status, although a number of matters of fact must be considered in making that determination. See Restatement of Agency (Second) § 220(1) & (2) (1957), and official comments thereon. In cases of employment of a driver with vehicles, the existence of the right to control has traditionally been the decisive question. See generally W. Seavey, Agency § 84, at 142-43 (1964), and cases cited therein. The Board has consistently applied a similar agency test. See, e. g., News Syndicate Co., 164 N.L.R.B. 422 (1967); Pure Seal Dairy Co., 135 N.L.R.B. 76, 79 (1962); Squirt-Nesbitt Bottling Corp., 130 N.L.R.B. 24 (1961).

In order to determine whether the Board has correctly applied the test here, we shall first consider the facts in the record bearing upon the relationship between the distributors and the company. The company had franchises to produce and sell several varieties of fountain syrup and beverages within an area covering eastern Massachusetts. Prior to 1970 all deliveries of products to retail accounts were made by driver-salesmen on the company payroll and in company trucks. In May, 1970, the company offered these employees an opportunity to become distributors under an oral arrangement which could be terminated at will by the company or distributor. Under the arrangement a distributor is assigned an exclusive territory, or route, by the company. The company may alter, and has altered, the size of a route. A distributor may lose an account on his route if the customer will not buy from him.

The distributors are charged for products loaded on their trucks at the company’s plant, and their profits derive from the difference between the price received from customers and the price paid to the company and other expenses. The company pays no salary, unemployment insurance, Social Security, or Workmen’s Compensation insurance, and takes no tax deductions, on behalf of the distributors. The annual earnings of distributors range from $27,000 to $13,000, while driver-salesmen employed by the company and trained to become distributors receive about $7000 in wages and $2000 in benefits annually. On cash accounts the distributors are responsible for their own collections; but when the customer is a large independent or chain store with a central billing office, the company bills the customer directly through a charge account and assumes credit risks, and the distributor receives a credit towards his purchases. The company maintains a list of suggested prices to charge retailers, but the distributors need not follow the list price although in practice they almost always do. The company states the wholesale price and a suggested retail price on its standard sales receipts which are given by distributors to customers.

At the time of the regional director’s decision, twenty-one of the distributors had purchased their trucks directly or indirectly from the company, and the other three used trucks leased from the company. About half the purchases were financed through a bank of which the company president is an officer. The bank has an agreement from the company to buy the truck of any distributor who defaults on payments. The distributors pay all expenses for operation, maintenance, and garaging of their trucks, which are registered and insured in the distributors’ names. The company at its own expense paints the trucks in the same color and style, and the trucks bear emblems of Seven-Up or of the company’s other brands of beverage. The distributors hire and pay for helpers when necessary, but in practice the distributors use only one truck. The distributors may not sell products in competition with those of the company. The company, in cooperation with the franchising parents, pays for advertising carried on the trucks and for other promotional material. The company does not require the wearing of uniforms, but suggests it. The distributors do buy and usually wear uniforms, which include an insignia provided by the company.

Three company sales counsellors assist the distributors in promotions and displays, and company merchandisers visit customers’ stores and occasionally accompany the distributors in their trucks. New driver-salesmen and newly hired distributors who were not driver-salesmen previously are introduced to customers on their routes by the counsellors and merchandisers, who also show the new drivers how to put out racks, stock shelves, and call on special accounts. The company sets sales quotas for each distributor according to target goals of the parent franchisors. Distributors exceeding their quotas often receive prizes or cash incentives in addition to the increased sales and profits. The company invites distributors to attend periodic company sales meetings, which provide information on improving sales and on incentive programs. One distributor, who had the lowest sales results, was suspended by the company’s director of marketing when he refused to attend the sales meetings. Occasionally the company conducts customer surveys to evaluate the distributors’ performance. There was testimony that company officials had warned one distributor about his attire and had commented to another distributor on the condition of his shelves and displays. The company has a “100 Point Club” for distributors, who can earn points and then prizes for obtaining prime display space in stores, and who can lose points for irregular personal appearance or for an untidy truck.

The company provides distributors with a direction book which lists the names and locations of accounts on the route, the products and quantity to be carried, the person to see in a store, and directions to the next stop. In some instances scheduled stops are listed by day and time when demanded by a customer, but distributors are generally free to follow their own schedule and to make deliveries when they wish. A schedule for loading at the company plant was established to avoid waiting time.

Applying the right-to-control test after a hearing, the regional director found that the distributors are employees rather than independent contractors. The regional director acknowledged that a number of the facts might be indicative of independent contractor status. These included the distributors’ ownership and maintenance of their own trucks, their hiring of helpers, their extension and assumption of the risks of customer credit, and their absence from the company payroll. However, the regional director stated that these facts alone do not establish independent contractor status and were outweighed by other facts demonstrating the company’s effective control over the distributors’ operations. Among these facts were the company’s control of the size of each distributor’s territory; its assistance in obtaining new accounts and its extension of credit to chain stores and supermarkets; its assistance in customer relations and merchandising; and its incentive program for performance, including the appearance of uniforms and trucks. In addition, the regional board cited the fact that the company can terminate at will the verbal agreement with the distributors, who neither pay for nor have a proprietary interest in their routes. The Board, denying the company’s motion to reopen the representation hearing, accepted the regional director’s finding that the distributors are employees under the Act.

Since the Board’s conclusion was an application of law to facts and involved no special agency expertise, the company contends that the standard of review by this court is not whether substantial evidence supports the Board’s ultimate finding but rather whether the Board had “a choice between two fairly conflicting views.” United Insurance, supra, 390 U.S. at 260, 88 S.Ct. at 991, quoting Universal Camera Corp. v. NLRB, 340 U.S. 474, 488, 71 S.Ct. 456, 95 L.Ed. 456 (1951). We do not read “fairly conflicting views” to mean complete equipoise. Nor do we think the Court in United Insurance intended to establish a different standard from that of “substantial evidence” as articulated in Universal Camera. And under either formulation the mere fact that the reviewing court itself would have taken a different original view of the matter is insufficient for reversal. The Board decision should be set aside only if not supported by substantial evidence when viewed in light of the entire record, including the evidence opposed to the Board’s position. The record amply supports the Board’s conclusion that the company has the right to, and does, control the distributors’ performance of their duties- — not by any formal authority, but by means of suggestions which are adhered to because of the company’s power to grant and revoke distributorships and to alter their value at will. Cf. The Herald Co. v. NLRB, 444 F.2d 430 (2d Cir. 1971). It is significant that none of the distributors — whatever their theoretical freedom to deliver noncompeting products — perform delivery services for anyone but the company. “[D]aily employment in the regular business of the employer” is a factor which has led state courts to find the driver to be a servant — especially if he is employed at will. See W. Seavey, Agency § 84, at 143 & nn. 41-42 (1964), and cases cited therein. It is also significant that the distributors are trained by the company’s supervisory personnel and perform functions that are essential to the company’s normal operations. Moreover, the distributors do business in the company name with company assistance and guidance. Cf. United Insurance, supra, 390 U.S. at 259, 88 S.Ct. 19.

The company further argues that the Board order should not be enforced because the Board’s determination of employee status is inconsistent with its prior holdings in Pure Seal Dairy Co., 135 N.L.R.B. 76, 79 (1962), and American Factors Co., 93 N.L.R.B. 447, 448-49 (1952). But while these cases have undeniable similarities, they are distinguishable on their facts. We disagree with the company’s contention that they stand for an approach irreconcilable with the result reached here. The Board in other not dissimilar cases has found drivers to be employees. See e. g., NLRB v. Pepsi Cola Bottling Co. of Mansfield, 455 F.2d 1134 (6th Cir. 1972); Frito-Lay, Inc., 178 N.L.R.B. 611 (1969); Pepsi Cola Bottling Co. of Michigan, 156 N.L.R.B. 80 (1965); Squirt-Nesbitt Bottling Corp., 130 N.L.R.B. 24 (1961). No easy formula or isolated factor is determinative. All the incidents of the relationship must be assessed and weighed in each case. United Insurance, supra, 390 U.S. at 258, 88 S. Ct. 19.

We hold that the Board did not err in finding the company’s distributors to be employees under section 2(3) of the Act.

Enforcement granted.

      . “Where the one for whom the services are performed retains the right to control the manner and means by which the result is to be accomplished the relationship is one of employment, while, on the other hand, where control is reserved only as to the result sought, the result is that of an independent contractor. The resolution of this question depends on the facts of each case, and no one factor is determinative.”
      News Syndicate Co., 164 N.L.R.B. 422, 423 (1967).


author: WALLACE, Circuit Judge:

text:
    PROVIDENT SECURITIES COMPANY, a California corporation, PlaintiffAppellee, v. FOREMOST-McKESSON, INC., a Maryland corporation, Defendant-Appellant.
    No. 71-2965.
    United States Court of Appeals, Ninth Circuit.
    Sept. 19, 1974.
    Certiorari Granted Feb. 18, 1975.
    See 95 S.Ct. 1117.

      Morton Moskin, New York City, N.Y., (argued) of Landels, Ripley & Diamond, San Francisco, Cal., for defendant-appellant.
    Walter R. Allan (argued) of Pillsbury, Madison & Sutro, San Francisco, Cal., for plaintiff-appellee.
    Before ELY, TRASK and WALLACE, Circuit Judges.
   OPINION

WALLACE, Circuit Judge:

Provident Securities Company (Provident) filed this action, seeking a declaration of nonliability for short-swing profits under section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). Foremost-McKesson, Inc. (Foremost) counterclaimed, seeking a declaration of liability and recovery of the profits. Both parties moved for summary judgment and the district court found in favor of Provident, holding that the Provident-Foremost transaction did not fall within section 16(b) since it did not involve the potential for speculative abuse of inside information condemned by the Act. Provident Securities Co. v. Foremost-McKesson, Inc., 331 F.Supp. 787 (N.D.Cal.1971). We affirm, but on other grounds.

Provident (now dissolved) was a holding company owned by the descendants of W. H. Crocker. In the fall of 1968, it tentatively decided to liquidate its assets and hired Dillon, Read &• Company to analyze its financial structure and to seek a purchaser which in turn led to Provident negotiating with Foremost. Initially Provident hoped to sell its assets for cash since cash would be easy to distribute to its shareholders. But eventually it compromised and accepted convertible debentures, one half of which would be registered as soon as possible after closing so that the stock could be offered to the public.

On September 25, 1969, pursuant to this compromise, Provident and Foremost executed a purchase agreement which provided that Foremost would purchase approximately two-thirds of Provident’s assets for $54,000,000, consisting of $4,250,000 in cash and $49,750,000 in Foremost six percent convertible subordinated debentures. On October 15, 1969, the closing was held under the purchase agreement. At that time Foremost delivered to Provident a check for $4,250,000 and a debenture in the principal amount of $40,000,000. This debenture was subsequently split into two debentures in the principal amounts of $25,000,000 and $15,000,000. At the time of closing and in Provident’s behalf, Foremost also delivered to an escrow agent a debenture in the principal amount of $2,500,000. The debentures were immediately convertible into common stock in an amount in excess of 10 percent of Foremost’s outstanding shares. At the completion of the sale, Provident became a beneficial owner of more than 10 percent of a class of Foremost equity securities as provided in section 16(a) of the Act, 15 U.S.C. § 78p(a). On October 20, 1969, Foremost delivered to Provident an additional debenture in the principal amount of $7,250,000.

The following day, October 21, 1969, Provident, Foremost and Dillon, Read & Company, as representative of the underwriting group (Underwriters), executed an underwriting agreement providing for the sale by Provident of the debenture in the principal amount of $25,000,000 to Underwriters at a price of $25,366,666.66. On October 24, 1969, Provident distributed debentures to its shareholders in the aggregate principal amount of $22,250,000. At this point Provident ceased to be a 10-percent shareholder of Foremost stock.

On October 28, 1969, the closing under the underwriting agreement was held and Provident transferred the $25,000,000 debenture to Underwriters in exchange for a check in the amount of $25,366,666.66. The following day, after waiting the necessary time for the check to clear, Provident distributed the cash to its shareholders. On August 31, 1970, following the completion of liquidation proceedings, Provident was dissolved and its remaining assets transferred to a liquidating trust.

A. The Threshold Test — Potential for Speculative Abuse

Section 16(b) of the Securities Exchange Act was enacted to prevent corporate officers, directors and principal shareholders from profiteering in inside information through short-swing speculation. The section was designed to discourage corporate insiders from reaping profits from fluctuations in the price of their corporation’s stock that were predictable on the basis of inside information.

Consistent with this statutory purpose, the Supreme Court in Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 595, 93 S.Ct. 1736, 36 L.Ed.2d 503 (1973), recently adopted a pragmatic approach that subjects short-swing transactions by an insider to section 16(b) scrutiny only if they involve the potential for speculative abuse of inside information. As a prerequisite to the Kern County threshold test, however, the Court indicated that there must be an “unorthodox” transaction such as “stock conversions, exchanges pursuant to mergers and other corporate reorganizations, stock reclassification, and dealings in options, rights, and warrants.” 411 U.S. at 593 n.24, 93 S.Ct. at 1744. The Court’s examples of “unorthodox” transactions were probably not intended to be all inclusive but suggest that if the transaction is cash-for-stock or essentially cash-for-stock, then the Kern-County threshold rule should not be applied. In the orthodox case, the transaction must be tested against the literal terms of the section.

The Provident-Foremost transaction was essentially a cash-for-stock transaction. Provident purchased Foremost debentures, convertible immediately into a large block of common stock, in exchange for two-thirds of its assets. There was no substantial period of delay between the initial agreement and the exchange of consideration. The rights and obligations of the parties were fixed when the purchase agreement was executed. The purchase price did not depend on a formula that was tied to the price of the stock on the market, cf. Booth v. Varian Associates, 334 F.2d 1 (1st Cir. 1964), cert. denied, 379 U.S. 961, 85 S.Ct. 651, 13 L.Ed.2d 556 (1965), but was fixed at the time of agreement. The transaction was not merely a record-keeping maneuver, cf. Blau v. Max Factor & Co., 342 F.2d 304 (9th Cir.), cert. denied, 382 U.S. 892, 86 S.Ct. 180, 15 L.Ed.2d 150 (1965), but was an actual transfer of stock for assets. Given these facts there is no reason to treat the Provident-Foremost transaction as anything other than an orthodox sale of stock. As Professor Loss writes:

Conversion and merger-like transactions aside, the voluntary exchange of securities, either for assets or for other securities, at least of a different issuer, is ordinarily as much a “purchase" or “sale” as if the consideration had been cash.

2 L. Loss, Securities Regulation 1072 (2d ed. 1961) (footnote omitted).

Provident argues that the transaction was in reality not a purchase, but rather a sale of assets. It points out that it originally preferred cash, but, at Foremost’s insistence, compromised to accept convertible stock. But even though this assertion may be correct, it does not alter the nature of the transaction for section 16(b) purposes. Provident exchanged its assets for Foremost stock. The only distinction between this transaction and the usual cash-for-stock sale is the nature of the consideration. In all other respects the transaction was orthodox. See Stella v. Graham-Paige Motors Corp., 132 F.Supp. 100, 102-103 (S.D.N.Y.1955), modified, 232 F.2d 299 (2d Cir.), cert. denied, 352 U.S. 831, 77 S.Ct. 46, 1 L.Ed.2d 52 (1956). We see no meaningful distinction between consideration in the form of cash and consideration in the form of a corporate asset. Consequently, as was implicit in Kern County, the actual-potential-for-abuse threshold test is not relevant to our determination since that potential is presumed if the elements of the section are satisfied.

But even if the Provident-Foremost transaction were unorthodox, it involved the potential for speculative abuse of inside information and, therefore, is subject to section 16(b) scrutiny. Under the Kern County rule it is not necessary that the plaintiff prove actual abuse; the transaction must be subjected to scrutiny if there is a potential. 411 U.S. at 595, 93 S.Ct. 1736; see Smolowe v. Delendo Corp., 136 F.2d 231 (2d Cir.), cert. denied, 320 U.S. 751, 64 S.Ct. 56, 88 L.Ed. 446 (1943); The Supreme Court, 1972 Term — Liability for Insider Trading Under Section 16(b), 87 Harv.L.Rev. 291, 295-296 (1973). In determining whether a transaction has that potential, the Kern County Court looked primarily to two factors: (1) Could the defendant reasonably be expected to have had access to inside information? And (2) did he initiate the transaction voluntarily? 411 U.S. at 596-600, 93 S.Ct. 1736.

Section 16 requires that we presume that a shareholder who owns 10 percent of his corporation’s stock has access to inside information. Apparently, Congress assumed that a 10-percent shareholder would generally have sufficient control of the corporation to have such access. Where, however, the hostility of the management of the corporation to the 10-percent shareholder precludes any real possibility of access to inside information, as in the Kern County tender offer situation, the presumption may be rebutted and the court may conclude that he in fact did not have access. 411 U.S. at 598, 93 S.Ct. 1736. Provident has not demonstrated that the Foremost management was hostile. To the contrary, the general cooperation involved in the transaction would indicate that Provident conferred intimately with the Foremost management and could well have had access to confidential corporate information.

The second factor the Supreme Court considered in Kern County was whether the transaction was voluntary. Implicit in the decision is the limitation that the Kern County rule of leniency should not be applied where the defendant could have avoided section 16(b) liability without serious detriment. See The Supreme Court, 1972 Term — Liability for Insider Trading Under Section 16(b), 87 Harv.L.Rev. 291, 300-301 (1973). There is no evidence in this case to suggest that Provident was forced to enter into any of the transactions. There is evidence, however, to show that Provident’s management was aware of the section 16(b) problem and entered the transaction in spite of the possibility that it might be held liable for the profits. Provident has not suggested that it would have suffered any detriment had it not completed the transactions when it did. Absent a showing of involuntariness, we would not be justified in applying the Kern County rule.

After Provident became the owner of more than 10 percent of Foremost’s stock, it might have had access to inside information which it could have abused for its speculative advantage. For example, assume Provident learned that Foremost had decided not to declare a dividend in order to maintain the capital it would need to develop the real estate just acquired from Provident. On the basis of this information, Provident might have reasoned that the market value of Foremost stock would rise in response to the news of the acquisition and then fall in response to the news of the decision not to declare a dividend. Provident might have concluded that it should sell its stock just after the acquisition news, but just before the dividend news, became public. Such trading is exactly the kind of speculative abuse that section 16(b) is designed to discourage. Thus, even if we assume that the Provident-Foremost transaction was unorthodox, we are required to subject it to section 16(b) scrutiny.

B. Section 16(b) Scrutiny — The Closing Transaction

Under section 16(b) the issuer of nonexempt securities may recover from a beneficial owner of 10 percent of its outstanding stock any profits realized from the purchase and sale or sale and purchase of the issuer’s stock within a period of six months. Foremost argues that the $366,666.66 that Provident received in excess of the principal amount of the debenture it sold to Underwriters is a short-swing profit to an insider and thus, under section 16(b), it may be recovered by Foremost as the issuer. At the outset we are faced with the question of when, for purposes of section 16(b), Provident’s sale of the debenture to Underwriters was completed. If the sale was completed on October 21, the date the underwriting agreement was executed, Provident was a beneficial owner of 10 percent of Foremost’s outstanding stock and we must decide if the remaining requirements of section 16(b) have been satisfied. On the other hand, if the sale was not completed until October 28, the date of closing and a date subsequent to the distribution of debentures to the shareholders, then Provident was not a beneficial owner of 10 percent at the time of sale, and Foremost cannot recover the profit. Reliance Electric Co. v. Emerson Electric Co., 404 U.S. 418, 92 S.Ct. 596, 30 L.Ed.2d 575 (1972).

Federal law governs the construction of terms used in the Securities Exchange Act. Tcherepnin v. Knight, 389 U.S. 332, 337-338, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967). Cf. Blau v. Lehman, 368 U.S. 403, 82 S.Ct. 451, 7 L.Ed.2d 403 (1962). Thus, the question of when a sale is complete for purposes of section 16(b) must be decided so as to foster the goals of the federal legislation rather than under concepts of when title passes under state law. Bershad v. McDonough, 428 F.2d 693, 696-697 (7th Cir. 1970), cert. denied, 400 U.S. 992, 91 S.Ct. 458, 27 L.Ed.2d 440 (1971); see SEC v. National Securities, Inc., 393 U.S. 453, 467, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969). In making this determination, the courts have looked to that point at which the insider has relinquished his ability to control the transaction to the extent that he no longer has the potential to use inside information to his own advantage and to the detriment of the public or outside shareholders. See, e. g., Booth v. Varian Associates, 334 F.2d 1 (1st Cir. 1964), cert. denied, 379 U.S. 961, 85 S.Ct. 651, 13 L.Ed.2d 556 (1965). This ability to control is generally relinquished when the insider is irrevocably bound to sell a specific number of shares at a fixed price, even though the formalities necessary for the transfer of title may not have yet occurred. Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 93 S.Ct. 1736, 36 L.Ed.2d 503 (1973); Booth v. Varian Associates, 334 F.2d 1 (1st Cir. 1964), cert. denied, 379 U.S. 961, 85 S.Ct. 651, 13 L.Ed.2d 556 (1965); Blau v. Ogsbury, 210 F.2d 426, 427 (2d Cir. 1954).

On October 21, when Provident executed the underwriting agreement, it was bound and the price was fixed. After that date, Provident no longer had the potential to use inside information to manipulate the terms and conditions of the agreement. As to Provident, the sale was at that date complete, subject only to the usual conditions precedent to closing.

Provident argues that its obligations under the underwriting agreement were conditional until after closing. But Provident’s obligations were conditioned only by the requirements that the registration statement become effective on the date of the agreement, that no stop order issue prior to closing and that Foremost furnish Provident with an opinion letter on the legality of the transaction. None of these conditions subjected Provident to any market risks after the date of the agreement. If the value of Foremost stock had declined in response to the public disclosure of adverse inside information, Provident would nevertheless have received the same price for the stock.

One condition in the agreement, however, may have prevented Provident, for a limited period time, from benefiting from any possible misuse of adverse inside information. Section seven of the agreement gave Underwriters the right to terminate the agreement prior to the time that the registration statement became effective if in its judgment there had occurred “a material unfavorable change in political, financial or economic conditions generally.” Presumably, if the price of Foremost stock had fallen substantially in response to unfavorable information that had become public between the time of execution and the time the registration statement became effective, Underwriters could have terminated the agreement. Nevertheless, the condition does not alter the posture of this case since the registration statement, as required by the agreement, became effective on the same date that the agreement was executed.

We hold that for purposes of section 16(b) the sale of stock was completed on October 21, the date that the underwriting agreement was executed, and not on October 28, the date of closing. On the date of sale, therefore, Provident was the beneficial owner of 10 percent of Foremost’s stock.

C. The Initial Transaction

In order for section 16(b) liability to attach, however, the insider must have owned 10 percent of the issuer’s stock both at the time of the purchase and of the sale. The relevant part of the statute reads: “This subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the security involved . ” The correct construction of this language has been the basis of a number of law review commentaries, but there have only been three prior cases that have analyzed it.

The first case in which a court analyzed this language was Stella v. Graham-Paige Motors Corp., 104 F.Supp. 957 (S.D.N.Y.1952), in which Judge Kaufman concluded that the language “at the time of” must be construed to mean “simultaneously with,” rather than prior to. Thus, he held that the initial purchase in which a person becomes the owner of 10 percent of the issuer’s stock is a section 16(b) transaction and that a sale within six months serves as the closing transaction, subjecting the seller to liability for any profit. Judge Kaufman’s primary rationale for this conclusion was that if the language were construed to mean “prior to,” the owner of a large block of stock could reduce his holdings to below 10 percent and then repurchase without liability attaching. 104 F.Supp. at 959.

When the case eventually came before the Second Circuit, the court approved Judge Kaufman’s construction without analysis. 232 F.2d 299, 300-301 (2d Cir.), cert. denied, 352 U.S. 831, 77 S.Ct. 46, 1 L.Ed.2d 52 (1956). Judge Hincks dissented, arguing that the initial purchase should not be a transaction within the scope of section 16(b). He reasoned that the language is clear, thus making it inappropriate for the court to go beyond the express terms of the statute and to consider what Congress must have intended. He further reasoned that the Securities Exchange Act is directed at eliminating the profit to be gained by corporate fiduciaries through speculating on the basis of advance information. A 10-percent shareholder, he argued, is presumed to have access to such information because of the control he has over the corporation; but to conclude that a person has access to such information prior to the purchase in which he became a 10-percent shareholder ignores the rationale of the presumption. 232 F.2d at 304-305.

A district court in the Eighth Circuit adopted Judge Hinck’s approach without analysis. Arkansas Louisiana Gas Co. v. W. R. Stephens Investment Co., 141 F.Supp. 841, 847 (W.D.Ark.1956). Fourteen years later the Court of Appeals for the Eighth Circuit, the only other court to discuss the issue, adopted Judge Kaufman’s approach. Emerson Electric Co. v. Reliance Electric Co., 434 F.2d 918 (8th Cir. 1970), aff’d, 404 U.S. 418, 92 S.Ct. 596, 30 L.Ed.2d 575 (1972). On the rationale that any other view would weaken the statute, the court held that the purchase by which a person becomes a 10-percent shareholder can be one of a pair of transactions necessary for section 16(b) liability. Although acknowledging that the congressional intent is “not as clear as desirable,” the court concluded that such a construction was consistent with Congress’ purpose in enacting the section.

When Emerson Electric came before the Supreme Court, the Court noted the issue, but declined to resolve it because a cross-petition for certiorari had not been filed. 404 U.S. at 421, 92 S.Ct. 596. The Court did, however, repeatedly emphasize that the owner must hold 10 percent “both at the time of purchase and sale.” 404 U.S. at 419, 423 and 424, 92 S.Ct. at 599. Slightly more than a year later the Court again had the issue before it, but again declined to resolve the issue by deciding the case on other grounds. In Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 584, 93 S.Ct. 1736, 1739, 36 L.Ed.2d 503 (1973), the Court said:

Unquestionably, one or more statutory purchases occur when one company, seeking to gain control of another, acquires more than 10% of the stock of the latter through a tender offer made to its shareholders. But is it a § 16(b) “sale” when the target of the tender offer defends itself by merging into a third company and the tender offeror then exchanges his stock for the stock of the surviving company and also grants an option to purchase the latter stock that is not exercisable within the statutory six-month period?

The Court held that the transactions involved in the case before it did not have the potential for speculative abuse of inside information and thus were not within the scope of section 16(b). In view of the Court’s repeated emphasis of the language “both at the time of purchase and sale” in Emerson Electric, it is unclear whether its statement in Kern County was intended to resolve the question of whether the initial purchase is a section 16(b) transaction. Since the Court noted that “one or more statutory purchases occur” during a tender offer, it may have intended that the statutory purchases occur only after the purchaser has acquired 10 percent.

This conclusion seems to be required by the Court’s later statement that a tender offeror’s calculations that he may be able to resell the stock at a profit to a partner of a defensive merger

do not represent the kind of speculative abuse at which the statute is aimed, for they could not have been based on inside information obtained from substantial stockholdings that did not yet exist. Accepting both that Occidental [the tender offeror] made this very prediction and that it would recurringly be an accurate forecast in tender-offer situations, we nevertheless fail to perceive how the fruition of such anticipated events would require, or in any way depend upon, the receipt and use of inside information.

411 U.S. at 597, 93 S.Ct. at 1746 (emphasis added and footnote omitted). Since a person making a decision to purchase enough stock to increase his holdings to 10 percent of a corporation’s outstanding shares could not have made that decision “based on inside information obtained from substantial stockholdings,” the Court must have intended for section 16(b) to apply only after that person becomes a statutory insider.

This construction of “at the time of” is supported by the legislative history surrounding the enactment of section 16(b). An early draft of the section read;

(b) It shall be unlawful for any director, officer, or owner of securities, owning as of record and/or beneficially more than 5 per centum of any class of stock of any issuer, any security of which is registered on a national securities exchange—
(1) To purchase any such registered security with the intention or expectation of selling the same security within six months; and any profit made by such person on any transaction in such a registered security extending over a period of less than six months shall inure to and be recoverable by the issuer, irrespective of any intention or expectation on his part in entering into such transaction of holding the security purchased for a period exceeding six months.

Hearings on S. Res. 84, S. Res. 56 and S. Res. 97, Before the Senate Comm. on Banking & Currency, 73d Cong., 1st Sess., pt. 15, at 6430 (1934) [hereinafter cited as 1934 Hearings]. As is apparent from this draft, the section was originally designed to deter insiders from purchasing stock without any intention of making a long-term investment, but only with the intention of profiting from upward fluctuations in the market price that were predictable on the basis of inside information. The section was directed against an insider who has no intention of changing his investment relationship to the corporation, but rather has an “intention or expectation” to purchase and sell the stock within six months. After the pair of transactions is completed he intends to own exactly the same interest in the corporation as he owned before he began his speculative venture. See Blau v. Max Factor & Co., 342 F.2d 304, 308-309 (9th Cir.), cert. denied, 382 U.S. 892, 86 S.Ct. 180, 15 L.Ed.2d 150 (1965); Comment, Section 16(b): An Alternative Approach to the Six-Month Limitation Period, 20 U.C.L.A.L.Rev. 1289, 1294-1295 (1973).

The limitation period was set arbitrarily at six months since the speculative advantage to be gained from inside information is usually short lived; the fluctuations in the market price generally occur for only a short period of time after the inside information becomes known to the public. After a period of six months little speculative advantage remains. See Comment, The Scope of “Purchase and Sale” Under Section 16(b) Of The Exchange Act, 59 Yale L. J. 510, 511 (1950).

As originally drafted the section did not cover the situation where an insider, with inside information adverse to the corporation and indicating a decline in the market price, would sell a large block of stock and later repurchase at a greatly reduced price. Thomas Corcoran, one of the drafters of the section and counsel to the Senate committee, testified as follows:

Senator BULKLEY. Do you provide for the converse of that, where a man might sell for a short term with the intention of repurchasing ?
Mr. CORCORAN. No; it should have been provided for. No; I do not think you need to, sir, because the next section prevents selling short.
Senator BULKLEY. It would not be selling short. He might be a large stockholder, and sell his own stock with the intention of repurchasing.
Mr. CORCORAN. The bill does not cover that case. I do not know whether it should or not.
Senator BULKLEY. Is that not just as reprehensible as to take a short turn on the up side ?
Mr. CORCORAN. You see, the next provision prevents either short selling, or selling against the box.
Senator BULKLEY. It would not be a short sale.
Mr. CORCORAN. Or selling against the box.
Senator BULKLEY. It would not be against the box. It would be his own stock.
Mr. CORCORAN. You mean a case where he sold the stock, and within 6 months bought it back at a lower price ?
Senator BULKLEY. Yes. A man having a large amount of stock might know that his company was going to pass a dividend, and then sell it with the intention of purchasing after the news was out.
Mr. CORCORAN. Possibly a provision to catch that should go into the statute. That does not happen as often as the other case.

1934 Hearings, supra, at 6557-6558.

Apparently in response to Senator Bulkley’s suggestion, the language of the section was amended to read:

[A]ny profit realized by [a statutory insider] from any purchase and sale, or any sale and purchase, of any equity security of such issuer within any period of less than six months . . . shall inure to and be recoverable by the issuer . . . (Emphasis added.)

Although the amended language includes a sale and repurchase by an insider, there is no indication that the amendment was designed to alter the section’s goal of deterring insiders from speculating on the basis of inside information obtained because of “substantial stockholdings.” Indeed, the amended version articulates this goal even more clearly than the original draft. In addition to the “purchase and sale, or sale and purchase” language, Congress added a preamble enunciating that the section was enacted

[f]or the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer

15 U.S.C. § 78p(b) (emphasis added).

The drafters recognized, however, the difficulty of proving that the insider actually intended a short-swing transaction when he made his original decision. Mr. Corcoran, after reading the draft section to the committee, testified:

That is to prevent directors receiving the benefits of short-term speculative swings on the securities of their own companies, because of inside information, The profit on such transaction under the bill would go to the corporation. You hold the director, irrespective of any intention or expectation to sell the security within 6 months after, because it will be absolutely impossible to prove the existence of such intention or expectation, and you have to have this crude rule of thumb, because you cannot undertake the burden of having to prove that the director intended, at the time he bought, to get out on a short swing.

1934 Hearings, supra, at 6557. In order to ameliorate this difficulty of proving intention or expectation, the section created a statutory presumption that a person with access to inside information who purchases and sells, or sells and repurchases, within a six-month period does so with the intent to speculate rather than to invest. That the drafters intended for the presumption to be conclusive is clear from the following testimony:

Senator GORE. You infer the intent from the fact.
Mr. CORCORAN. From the fact.
Senator KEAN. Suppose he got stuck in something else, and he had to sell?
Senator BARKLEY. All he would get would be what he put into it. He would get his original investment.
Mr. CORCORAN. He would get his money out, but the profit goes to the corporation.
Senator KEAN. Suppose he had to sell.
Mr. CORCORAN. Let him get out what he put in, but give the corporation the profit.

1934 Hearings, supra, at 6557.

Since the presumption of intention or expectation is conclusive, it is necessary that it be narrowly construed so as to apply only to the class of persons who can reasonably be expected to have access to inside information. The hearings demonstrate that Congress intended that the class not be defined too broadly. As originally drafted the presumption applied, in addition to corporate officers and directors, to shareholders who owned five percent of a corporation’s stock. The Senate Committee was concerned that a person with that percentage of shares may not have access to inside information and increased the ownership to 10 percent.

As the Committee testimony indicates, the section also creates a presumption that officers, directors and 10-percent shareholders fall within the class of persons who may reasonably be expected to have access to inside information (statutory insiders). It does not appear, however, that this presumption (as distinguished from the presumption of intent to speculate) is always conclusive, since the Supreme Court has held that at least in some situations it may be rebutted. Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 93 S.Ct. 1736, 36 L.Ed.2d 503 (1973).

Nevertheless, the legislative history demonstrates that the class was not intended to include outsiders. As originally drafted subsection (b)(3) of the section provided that profits received by outsiders from short-swing speculation entered on the basis of confidential information received from insiders could be recovered by the issuer. The provision was deleted from the final draft apparently because the burden of proof required to support a recovery was thought to be too difficult. Since the original draft of the section contained a subsection expressly imposing liability on outsiders and a subsection expressly imposing liability on insiders, the deletion of the subsection imposing liability on outsiders, without material change in the other subsection, indicates that Congress ultimately decided to exclude outsiders from the operation of the statutory presumption. If Congress had intended for outsiders to be covered by the statute, logically it would have either altered the language of the remaining subsection to provide expressly for such coverage or amended the language of the separate subsection to overcome the objections. Thus, we conclude that the class encompassed by subsection (b) (2) (statutory insiders) was not intended to include outsiders. See 9 Stan.L.Rev. 582, 588 n.32 (1957).

Since a person who decides to purchase enough stock to increase his holdings to 10 percent of a corporation’s outstanding shares is an outsider at the time he makes his investment decision, he does not fall within the class of persons to which the conclusive presumption was intended to apply. He may have made that decision on the .basis of inside information, but such inside information could not have been acquired, in the language of the statute, “by reason of his relationship to the issuer,” or in the language of the Supreme Court, “from substantial stockholdings that did not yet exist.” Kern County Land Co., supra, 411 U.S. at 597, 93 S.Ct. at 1746. We hold that the initial purchase by which a person increases his holdings to 10 pei’cent of a corporation’s outstanding stock is not a section 16(b) transaction and that the conclusive presumption imputing an intent to speculate does not apply to such a person who sells within six months. The statutory language “at the time of,” in order to be consistent with the rationale of the statutory presumption, must be construed to mean prior to the time when the decision to purchase is made.

This construction, however, should not be applied to a transaction that is not an initial purchase but in reality is a repurchase or a closing transaction. It would be inconsistent with the rationale of the presumption and with the legislative history to allow a principal shareholder to sell his holdings below the 10 percent level and then repurchase at a profit within six months. Where a shareholder was within a class of persons who had access to inside information by reason of their relationship to the issuer prior to making his initial decision to speculate, the conclusive presumption should be applied if simultaneously with the conclusion of the closing transaction he is the owner of 10 percent of the issuer’s stock. Although this conclusion mandates that the language “at the time of” means prior to in the case of an initial transaction and simultaneously with in the case of a closing transaction, we do not believe that this “inconsistency” is inconsistent with the rationale of the section. In order for the statutory presumption of intention or expectation to deter speculation rather than to impose an arbitrary hardship on a good faith investor, it must apply only to shareholders who, at the time they make the decision to purchase or to sell, are within the class of persons who can reasonably be expected to have access to inside information by reason of their relationship to the corporation. This conclusion does not provide a consistent construction of the language “at the time of” for both the initial and the closing transactions, but it is consistent with the rationale of section 16(b) — a consistency that we believe is much more important than the consistency of terms. It is also consistent with the Supreme Court’s instruction that

where alternative constructions of the terms of § 16(b) are possible, those terms are to be given the construction that best serves the congressional purpose of curbing short-swing speculation by corporate insiders.

Reliance Electric Co. v. Emerson Electric Co., 404 U.S. 418, 424, 92 S.Ct. 596, 600, 30 L.Ed.2d 575 (1972) (footnote omitted). See Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 595 (1973). See also 9 Stan.L.Rev. 582, 588 n. 3 (1957).

With this construction, section 16(b) should be relatively easy to apply. Every section 16(b) fact situation involves a pair of transactions — an initial transaction and a closing transaction. If the defendant is a statutory insider prior to making his decision to enter the initial transaction — regardless of whether it is a purchase or a sale — the conclusive presumption imputing to him an intent to speculate on inside information must be applied if simultaneously with the closing transaction — regardless of whether it is a sale or a repurchase — he is the owner of 10 percent of the issuer’s stock and if both transactions have occurred within six months.

We concede that this construction of section 16(b) will not prevent all of the abuses of inside information. A person may well have had inside information at the time he makes a purchase that makes him a 10-percent shareholder. But he may also have had inside information at the time he makes a purchase that makes him a 9-percent shareholder. Additionally, a 10-percent shareholder who sells and repurchases after six months may have made the decision to do so on the basis of inside information. But in order for the conclusive presumption to apply to the transactions, the person must have had access to information at the time of the initial transaction and have executed the closing transaction within six months. If liability is imposed without either of these requirements having been satisfied, the rationale of the presumption will be destroyed. Section 16(b) was not intended to prevent all abuses of inside information, but only speculative abuses of inside information by statutory insiders. Persons injured by other abuses must seek a remedy in other securities laws. Blau v. Max Factor & Co., 342 F.2d 304, 307 (9th Cir.), cert. denied, 382 U.S. 892, 86 S.Ct. 180, 15 L.Ed.2d 150 (1965). For example, a person injured in connection with the sale or purchase of securities because of the abuse of material inside information may have a remedy under section 10(b) of the Securities Exchange Act and rule 10b-5. See Shapiro v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 495 F.2d 228 (2d Cir. 1974); Mitchell v. Texas Gulf Sulphur Co., 446 F.2d 90 (10th Cir.), cert. denied, 404 U.S. 1004, 92 S.Ct. 564, 30 L.Ed.2d 558 (1971); SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir. 1968), cert. denied, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969); In re Cady, Roberts & Co., 40 S.E.C. 907 (1961). Although an injured person may be required to prove actual abuse in these cases, such cases do not fall within the ambit of those practices that Congress felt were so injurious to the investment community as to require a conclusive presumption once the fact of short-swing trading at a profit is proved.

In this case Provident was not a statutory insider at the time of its initial purchase. The only possible section 16(b) transaction was the sale of the debenture to Underwriters. Foremost has not alleged a closing transaction within six months of this initial transaction. Absent a pair of section 16(b) transactions within the statutory period, no liability can attach.

Affirmed.

      . The Senate Report on the bill that became the Securities Exchange Act explained the purpose of section 16(b) as follows :
      The bill further aims to protect the interests of the jiublic by preventing directors, officers, and principal stockholders of a corporation, the stock of which is traded in on exchanges, from speculating in the stock on the basis of information not available to others. Any change in the holdings of such insiders must be reported to the Commission, and profits realized from the purchase and sale, or the sale and purchase of an equity security within a period of less than 6 months are recoverable by the corporation. Such a provision will render difficult or impossible the kind of transactions which were frequently described to the committee, where directors and large stockholders participated in pools trading in the stock of their own companies, with the benefit of advance information regarding an increase or resumption of dividends in some cases, and the passing of dividends in others.
      S.Rep.No.792, 73d Cong., 2d Sess. 9 (1934) (emphasis added).

      . See the testimony quoted in note 5, infra.

      . See, e. g., Munter, Section 16(b) Of The Securities Exchange Act Of 1934: An Alternative To “Burning Down The Barn In Order To Kill The Rats,” 52 Corn.L.Q. 69 (1966); Comment, Section 16(b): An Alternative Approach To The Six-Month Limitation Period, 20 U.C.L.A.L.Rev. 1289 (1973); 57 Colum.L.Rev. 287 (1957); 70 Harv.L. Rev. 1312 (1957); 9 Stan.L.Rev. 582 (1957).

      . The Supreme Court has recently rejected an argument that section 16(b) should be construed as creating a rebuttable presumption. See Reliance Electric Co. v. Emerson Electric Co., 404 U.S. 418, 438, 92 S.Ct. 596, 30 L.Ed.2d 575 (1972) (Douglas, J., dissenting) .

      . Senator Kean expressed his concern as follows :
      Senator KEAN. 1 think it is all right to apply it to a director or officer, but X think to require the ordinary investor-
      Mr. CORCORAN. Five percent is a lot in a modern corporal ion. Many corporations are controlled by 5 percent or 10 percent.
      Senator KEAN. They may own it or they may sell it. This applies to all corporations, and you are getting down to the point where you are interfering with the individual a good deal there. I agree with you with respect to the officers and directors.
      Mr. CORCORAN. A stockholder owning 5 percent is as much an insider as an officer or director. Whether he is a titular director or not, he normally is, as a practical matter of fact, a director.
      Senator KEAN. He might not be.
      Hearings on S.Res. 84, S.Res. 56 and S.Res. 97, Before the Senate Comm. on Banking & Currency, 73d Cong., 1st Sess., pt. 15, at 6556 (1934) [hereinafter cited as 1934 Hearings].
      Samuel Untermyer, an attorney from New York on whose expertise the Committee greatly relied, testified of the same concern:
      Mr. PECORA. The theory was that the ownership of 5 percent of the stock would practically constitute him an insider, and by virtue of that position he could acquire confidential information which he might use for his own enrichment by trading in the open market, against the interests of the general body of the stockholders. That is the main purpose sought to be served.

        Mr. UNTERMYER. I understand the purpose, and I understand the wisdom of it.
      Mr. PECORA. You approve of the principle?
      Mr. UNTERMYER. I approve of the principle, but 1 do not approve of its application to anybody who owns 5 percent, who is not an officer or director, and has no fiduciary relationship.
      Mr. PECORA. If you were to raise that limitation to 20 percent of a listed or registered security, you probably would have difficulty in having it apply to any individual, because it is a grave question whether, in any listed security, there is any individual who owns 20 percent or more of the outstanding stock.
      Mr. UNTERMYER. If he owns less, and is not an officer or director — ■
      Senator KEAN. If he is a director or officer, I think it should apply.
      Mr. UNTERMYER. I agree. I think it should apply. But if he is not — if he has no relation whatever to the corporation, except that he is an investor and owns that amount of security, I do not see why these penalties should be applied to him. They are too severe.
      Mr. PECORA. The only point I want to make is that with that evidence in mind, that management control of an active stock could be obtained through control of 10 percent of the outstanding stock — and there was a large amount of stock outstanding — where an individual owned as much as 5 percent or more, he would be in a position, through that ownership of a block of stock of that size, to virtually be an insider, and he could very well dictate, with one or two others, elections to the board of directors.
      Mr. UNTERMYER. So, you will not let anybody acquire over 5 percent.
      Mr. PECORA. It is open to anybody to do it, but he cannot use the information to trade for his own account against the public interest.
      Mr. UNTERMYER. But he cannot get any profit out of it. He is foreclosed from making anything out of it, and the result is that he will not buy it.
      Mr. PECORA. lie can profit from it provided his transactions are more than 6 months apart. It is designed avowedly to prevent insiders from utilizing their position to trade for their own account and against the interests of the general body of the stockholders. The only penalty against it, as you have observed, is that he has to disgorge his profits for the benefit of all the stockholders.
      Mr. UNTERMYER. That is a penalty that will prevent him from buying any more stock, and you will hurt the market in the stock. He may have to buy to protect the stock.
      Mr. PECORA. If he buys and does not sell again for another 6 months, he does not have to account.
      Mr. UNTERMYER. But he may just buy for the purpose of protecting the stock, and he may want to sell it as soon as he can. He may not be an insider at all. There are many corporations owned or controlled by big banking houses that have not 1 percent of the stock. They know more about it. They have got more information than the follow (sic) who owns 30 percent of the stock. They know all about it because they are running it. To take one extreme case, like the Wiggin case, and predicate legislation of this kind upon it is very dangerous because, as you know, Mr. Pécora, hard cases make bad laws.
      Mr. UNTERMYER. I must say [the section] is likely to do more harm than good.
      The CHAIRMAN. You think that that 5 percent ought to be made 20?
      Mr. UNTERMYER. I think so — 15 or 20 ; some substantial amount.
      Senator KEAN. Mr. Untermyer, would it not be satisfactory if you made it apply to the officers or directors ?
      The CHAIRMAN. That is another provision.
      Mr. UNTERMYER. I think that 5-per-eent provision should apply to the officers and directors, but I do not think it should apply to anybody who wants to accumulate a larger amount than 5 percent of the stock.

        Id. at 7741-7743.

      . At one time prior to passage, subsection (b)(3) provided:
      (b) It shall be unlawful for any director, officer, or owner of securities, owning as of record and/or beneficially more than 5 per centum of any class of stock of any issuer, any security of which is registered on a national securities exchange—
      (3) To disclose, directly or indirectly, any confidential information regarding or affecting any such registered security not necessary or proper to be disclosed as a part of his corporate duties. Any profit made by any person, to whom such unlawful disclosure shall have been made, in resi>ect of any transaction or transactions in such registered security within a period not exceeding six months after such disclosure shall inure to and be recoverable by the issuer unless such person shall have had no reasonable ground to believe that the disclosure was confidential or was made not in the performance of corporate duties.
      1934 Hearings, supra, note 5, at 6430.

      . The following testimony indicates the Committee’s concern over the difficulties in proving an abuse of inside information:
      Mr. CORCORAN". Subparagraph (3) affects the friends to whom these corporation directors and officers and big stockholders pass on a tip that the stock is going up for a short swing, and through whom they may conceal their own operations, since the friend may be simply acting as an agent through whom the director, officer, or principal stockholder effects the transaction for his own benefits.
      Senator CAREY. That would mean that if an oil company expected to bring in a well, and an officer knew of it and imparted that information to a stockholder, it would be contrary to this law.
      Mr. CORCORAN. If that were confidential, and if the stockholder to whom the tip was imparted knew it was confidential and should not have been disclosed.
      Then, if there were any profit in the 6 months swing in the stock, the company would get the profit.
      Senator CAREY. Suppose he did not say it was confidential, but said they had a good well coming in tomorrow, and this fellow went out and bought some stock?
      Mr. CORCORAN. The person who is being sued by the company, if he can show that he had no reasonable ground to believe that the disclosure was confidential or was made not in the performance of corporate duties, would not be liable.
      Senator BARKLEY. How can the digging of an oil well be confidential? Anybody who passes along would see it.
      Mr. CORCORAN. I do not know anything about the oil business.
      Senator CAREY. The information is not always given out.
      Senator GORE. They can tell whether they are going to produce, or whether it is a dry well.
      Senator BARKLEY. They cannot tell until they finish.
      Senator CAREY. I do not see how you can determine when the information is confidential and when it is not.
      Mr. CORCORAN. That would depend, sir, upon the nature of the business of the company and the nature of the information.
      Senator CAREY. Suppose he said, “I have a letter here today from our man out in the field, and I am certain from what he says that we are going to have a good well.” The man goes out into the market and buys.
      Mr. CORCORAN. Whether that is a revelation of confidential information depends upon all the circumstances surrounding the case.
      Senator CAREY. I think you are breeding a lot of lawsuits here.
      Senator GORE. If he says, “strictly between us two”, that would he confidential.
      1934 Hearings, supra, note 5, at 6560-6561.

      . One example of the speculative abuse of inside information that the section was designed to prevent was reported to Congress as follows:
      In another case, the president of a corporation testified that he and his brothers controlled the company with a little over 10 percent of the shares; that shortly before the company passed a dividend, they disposed of their holdings for upward of $16,000,000 and later repurchased them for about $7,000,000, showing a profit of approximately $9,000,000 on the transaction.
      S.Rep.No.792, 73d Cong., 2d Sess. 9 (1934).