Opinion for the court filed by Circuit Judge TAMM.
TAMM, Circuit Judge:
This case arises out of the plaintiff-appellee Securities and Exchange Commission's (SEC or Commission) successful injunctive action against defendant-appellant S. Mort Zimmerman in the United States District Court for the District of Columbia. The Findings of Fact and Conclusions of Law awarding an injunction to the Commission are reported as SEC v. Zimmerman, 407 F.Supp. 623 (D.D.C.1976). Appellant raises challenges to the district court's decision not to transfer this action under 28 U.S.C. § 1404(a) (1970), and to its findings and conclusions on the merits. We shall treat the issues in that order.
I. THE TRANSFER MOTION
The Commission commenced this action through a Complaint for Injunctive and Other Relief dated November 22, 1974. Named as defendants were Savoy Industries, Inc. (Savoy), Philip Weinkrantz, Interstate General, Inc. (Interstate), Lee Mansdorf, Anthony Damato, and appellant Zimmerman.
Appellant, a resident of Dallas, immediately made a pro se motion to dismiss, or to transfer to the United States District Court for the Northern District of Texas in Dallas under 28 U.S.C. § 1404(a). The Commission opposed the motion, stating that "a majority of the plaintiff's witnesses in this action are located in the New York metropolitan area, the corporate officers of Savoy and all its records are in New York [footnote omitted]."
Two months later, on September 19, at a hearing on a repeat status call, Zimmerman's counsel sought leave to have the case transferred or dismissed. In its denial, the district court noted that, "we have spent a certain amount of time on this case. We are familiar with it. It is ready for trial."
One week before trial was scheduled to begin, appellant's counsel once again sought a transfer to Dallas, arguing that "new facts have appeared that make it clear as a bell that this case has no real business being tried in Washington." Joint Appendix (J.A.) at 75. The new development, as alleged by counsel for appellant, was that the Commission intended to call only three witnesses: one from California, one from Dallas, and one from New York.
B. The Decision Not to Transfer
Appellant first argues that, after the hearing of October 15, 1975, the district court should have exercised its discretion to transfer the case to Dallas. See Brief for Appellant at 21-37. The relevant statute, 28 U.S.C. § 1404(a) (1970), provides: "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." This section applies to actions governed by special venue provisions, Ex parte Collett, 337 U.S. 55, 58-59, 69 S.Ct. 944, 93 L.Ed. 1207 (1949); see Continental Grain Co. v. Barge FBL-585, 364 U.S. 19, 80 S.Ct. 1470, 4 L.Ed.2d 1540 (1960), including the special venue provisions of the federal securities statutes, see Wyndham Associates v. Bintliff, 398 F.2d 614 (2d Cir.), cert. denied, 393 U.S. 977, 89 S.Ct. 444, 21 L.Ed.2d 438 (1968). See also United States v. National
Section 1404(a) finds its origins in the doctrine of forum non conveniens. See generally Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 507-09, 67 S.Ct. 839, 91 L.Ed. 1055 (1947). However, because section 1404(a) contemplates transfer in addition to dismissal to remedy the plaintiff's choice of an inconvenient forum, it is evident "Congress . . . intended to do more than just codify the existing law on forum non conveniens." Norwood v. Kirkpatrick, 349 U.S. 29, 32, 75 S.Ct. 544, 546, 99 L.Ed. 789 (1955). Thus, section 1404(a) is a revision as well as a codification, and a transfer is available "upon a lesser showing of inconvenience" than that required for a forum non conveniens dismissal. Id. "This is not to say that the relevant factors have changed or that the plaintiff's choice of forum is not to be considered, but only that the discretion to be exercised is broader." Id.
This court has said that "it is perhaps impossible to develop any fixed general rules on when cases should be transferred . . . ." Starnes v. McGuire, 168 U.S.App.D.C. 4, 15, 512 F.2d 918, 929 (1974) (en banc). Thus, the proper technique to be employed is a factually analytical, case-by-case determination of convenience and fairness. Van Dusen v. Barrack, 376 U.S. 612, 622, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964); Starnes v. McGuire, 168 U.S.App.D.C. 11, 14, 512 F.2d at 925, 928.
The appellant concedes, as indeed he must,
There can be no doubt that a plaintiff's choice of forum is entitled to at least some
Taking these contentions in reverse order, we note that appellant maintains that "nothing—nothing at all— was done in the District of Columbia (with the exception of a single trivial telephone call)." Id. At the very least, we view the matter differently. In addition to the phone call Zimmerman admits having made from Washington, we noted earlier that a Form 8-K was filed with the Commission in Washington, D.C., on or about February 11, 1974; that a Schedule 13D was filed similarly on or about April 10, 1974; and finally, that a Form 10-K was filed on or about May 24, 1974.
Appellant argues that the filings are relatively insignificant events that create but "bare-bones venue". Id. at 32-33. Once again, we are unable to agree. Both the Supreme Court and this court have held that the place where a document is to be filed may be regarded as the place where any asserted non-filing or misfiling occurred. Travis v. United States, 364 U.S. 631, 636, 81 S.Ct. 358, 362, 5 L.Ed.2d 340 (1961) ("When a place is explicitly designated where a paper must be filed, a prosecution for failure to file lies only at that place."); United States v. Lombardo, 241 U.S. 73, 36 S.Ct. 508, 60 L.Ed. 897 (1916); Investors Funding Corp. v. Jones, 161 U.S.App.D.C. 420, 422-423, 495 F.2d 1000, 1002-03 (1974) (per curiam). Appellant's notion that the Commission's choice of forum in this case is entitled to little weight is not persuasive.
Although it has been held that Section 27 of the Securities Exchange Act of 1934 does not establish a "privilege" for the plaintiff such that a section 1404(a) transfer will be possible only when the "privilege" has been abused, Freiman v. Texas Gulf Sulfur Co., 38 F.R.D. 336 (N.D.Ill.1965), it has been suggested that the presence of such a special venue statute is a factor to be considered. Zorn v. Anderson, 263 F.Supp. at 749; Freiman v. Texas Gulf Sulfur Co., 38 F.R.D. at 339. We need not go as far as Freiman or Zorn in order to refute Zimmerman's contention that the plaintiff's choice of forum is entitled to no value in this circumstance.
We turn now to appellant's last reason why the plaintiff's choice of forum should be minimized—that the Commission had a field office near Dallas. This fact seems to us to be more relevant to the question of whether the choice of the District of Columbia is, in fact, convenient for the plaintiff, than the question of how much weight should be given to the plaintiff's choice of forum.
Insofar as the convenience of the Commission is concerned, it must be remembered that, when this case was commenced, there were six named defendants.
There can be no doubt that the granting of Zimmerman's motion would have led to a delay. The trial was scheduled to begin in Washington on October 22, 1975, one week after the date of Zimmerman's final motion to transfer. Although there is a disagreement as to when the case could have been reached by the Dallas court,
The propriety of considering delay seems especially evident in view of the district court's assertion that "we have spent a certain amount of time on this case. We are familiar with it. It is ready for trial." J.A. at 71. Thus, not only would delay from a crowded docket be present, but also the delay associated with the Dallas district court's having to prepare itself for this complicated case. Although the court in Washington cannot be said to be more familiar with the applicable federal securities statutes than the court in Dallas, it is nevertheless apparent that the court here had a familiarity with the allegations, characters, lawyers, and previous history of litigation of this particular case. See Wyndham Associates v. Bintliff, 398 F.2d at 619-20 (quoting Cosmos Bank v. Bintliff, 67 Civ. 1984 (S.D.N.Y. July 20, 1966)).
A transfer of this case to Dallas in all probability would have been more convenient for the appellant. It is undisputed that Zimmerman was a resident of Dallas. J.A. at 12. More importantly, Zimmerman maintains that a transfer was necessary so as to provide more convenient access to the prospective witnesses for him "who could not be present at a trial held in Washington, all of them being from Dallas." Brief for Appellant at 24.
Whereas it is true that appellant made a proffer of the testimony of prospective witnesses giving their names and a general summary of their testimony, see Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3851, at 264-74 (1976), this proffer must be placed in perspective with the surrounding circumstances. Since it was made only one week before the trial was scheduled to commence, the
Finally, our review of the record convinces us that the district court gave a full and proper consideration to appellant's apparent dilemma. Not insignificantly, it suggested to Zimmerman's counsel that he state what each witness might say. Id. at 79. There followed a rather extended and spirited discussion of the testimony of these witnesses with regard to duplication, materiality, and other factors involved under 28 U.S.C. § 1404(a). J.A. at 79-100. The district court adjourned "to think about this and read the cases," and gave the parties an opportunity to submit additional authorities. Id. at 100. On this record, we can see only full and fair consideration with no abuse of discretion.
C. Appellant's due process contention
Appellant urges that the failure to transfer this case violated his due process right to a fair trial in that he was denied access to the Dallas witnesses "who could appear for him," id. at 77. Brief for Appellant at 21-37. Although appellant purports only to be challenging the failure to transfer under 28 U.S.C. § 1404(a), a fair interpretation of appellant's attack indicates that its scope may be broader than he suggests. An examination of appellant's argument makes clear that he is complaining of the very fact of a Washington trial in this case. Consequently, it appears to us that appellant is mounting a constitutional challenge not only to the failure of the district court to transfer this case, but also to the venue provision that brought Zimmerman's case to Washington, section 27 of the Securities Exchange Act of 1934. To the extent that appellant is attacking this venue provision, his challenge must be denied based on the excellent reasoning of Chief Judge Learned Hand in Gratz v. Claughton, 187 F.2d 46 (2d Cir.), cert. denied, 341 U.S. 920, 71 S.Ct. 741, 95 L.Ed. 1353 (1951).
Insofar as Zimmerman bases his constitutional challenge on the failure of the district court to exercise its discretion, we have already held that Zimmerman failed to shoulder his burden in showing the need for a transfer. Although we find the appellant's argument innovative, it must fail. It seems to us that, if the district court did not abuse its discretion by refusing to transfer this case, a fortiori it did not act in an unconstitutional manner.
We find substantial precedential support for our conclusion in the recently decided case of United States v. Testa, 548 F.2d 847 (9th Cir. 1977). Testa involved a constitutionally based appeal from the district court's decision not to transfer under rule 21(b)
In Testa, defendant-appellant Epstein argued to the Ninth Circuit, that his due process right to a fair trial had been abridged because his trial had been held in Hawaii. Epstein asserted that the only defendants who went to trial resided in the Central District of California, that the relevant overt acts in furtherance of the conspiracy were committed in or near Los Angeles and Las Vegas, that the costs of travel to Hawaii and the costs of remaining there precluded him from producing favorable witnesses from Los Angeles, and that the Government would suffer no inconvenience. 548 F.2d at 856. In overruling the defendant's argument, the court pointed out that a rule 21(b) motion was discretionary, and that the defendant had not met his burden. Moreover, the defendant had made no effort to subpoena witnesses, and had moved for transfer only eight days before trial. Id. at 856-57.
In the case at bar, we have already seen that section 1404(a) contemplates a discretionary ruling on a transfer motion
II. THE SUBSTANTIVE FINDINGS OF THE DISTRICT COURT
The district court made extensive Findings of Fact and Conclusions of Law concerning Zimmerman's alleged violations of the federal securities laws. See SEC v. Zimmerman, 407 F.Supp. 623 (D.D.C.1976). Because the published findings are so extensive, we shall relate the facts only as necessary for our own disposition.
Despite the fact that the record contains a great deal of information concerning Zimmerman's various involvements and his attempts to gain control over States General Life Insurance Company (States), it appears to us that Zimmerman's presence in court springs unmistakably from the fact that there existed five allegedly misleading or incomplete documents. The documents are as follows:
1) A Schedule 13D, filed April 10, 1974, by a group consisting of Interstate, National
2) A form 8-K report, filed February 11, 1974, by Savoy. J.A. at 767-72. In connection with this Form 8-K, Zimmerman was found to have violated sections 10(b) and 13(a)
3) A Form 10-K report, filed on May 24, 1974, by Savoy. J.A. at 754-66. In connection with this Form 10-K, Zimmerman was found to have violated sections 10(b) and 13(a) of the Securities Exchange Act of 1934, rules 10b-5 and 13a-1
4) A letter to stockholders sent by Savoy, dated April 5, 1974. J.A. at 792-97. In connection with this letter, Zimmerman was held to have violated section 10(b) of the Securities Exchange Act of 1934, rule 10b-5 thereunder, and section 17(a) of the Securities Act of 1933. C.L. 16, 407 F.Supp. at 630.
5) An American Stock Exchange listing application filed by Savoy, dated February 12, 1974. J.A. at 774-79. In connection with this document, Zimmerman was held to have violated section 10(b) of the Securities Exchange Act of 1934, rule 10b-5 thereunder, and section 17(a) of the Securities Act of 1933. C.L. 17, 407 F.Supp. at 630-31.
As we perceive the Commission's theory of this case, there are two basic branches of alleged liability. The first branch hinges on a finding that Zimmerman, or a group of which Zimmerman was a member, controlled Savoy. See C.L. 11, 407 F.Supp. at 630; Finding of Fact (F.F.) 36, 407 F.Supp. at 628. Under this "control" branch of liability, the Commission appears to maintain that Zimmerman was liable vicariously for the allegedly misleading Form 8-K, Form 10-K, American Stock Exchange listing application, and letter to stockholders, all of which were promulgated or filed by Savoy. Brief of the SEC, Appellee at 40-43, 49-54.
The second basic branch of liability that the Commission seeks to impose upon Zimmerman stems from his alleged role as a member
B. The Liability for the Schedule 13D
In the view of the district court, with respect to the Schedule 13D, Zimmerman was required to disclose his background and his identity
In order to review this determination, we must first consult briefly the cases and authorities to determine what constitutes a "group" within the meaning of section 13(d)(3).
The holding of Bath Industries to the effect that an agreement to acquire additional shares precedes the necessity to make a Schedule 13D filing has not gone without contradiction. See GAF Corp. v. Milstein, 453 F.2d 709, 718 (2d Cir. 1971), cert. denied, 406 U.S. 910, 92 S.Ct. 1610, 31 L.Ed.2d 821 (1972). However, the courts have amplified the Bath Industries principle that a combination
It can readily be seen that the foregoing comports generally with the legislative history of section 13(d)(3). Concerning this section, both the House and Senate Reports state:
S.Rep. No. 550, 90th Cong., 1st Sess. 8 (1967); H.R.Rep. No. 1711, 90th Cong. 2d Sess. 8-9 (1968), reprinted in  U.S. Code Cong. & Admin.News. 2811, 2818 (emphasis added).
The fact that the quoted passage speaks of "those who seek to pool . . . their interests," and of those who "agree to act in concert," implies strongly that some type of combination toward concerted action is necessary. However, it is equally clear that whatever meeting of the minds, understanding, or arrangement that may exist need not be written. It is possible, indeed commonplace, for two or more to take concerted action informally.
This interpretation is fortified by the language in the last sentence of the above-quoted passage. The use of "any," "understanding," "relationship," and "other arrangement" emphasizes the notion that concerted action need not be formalized or express. The scope of section 13(d)(3) was clearly intended to extend beyond agreements and contracts in the classical contractual "offer" and "acceptance" sense. Surely, the broad language demonstrates an unmistakable congressional intent to bring pooling arrangements within the purview of section 13(d)(3), irrespective of whether they be formal or informal, written or unwritten.
Further, this result seems dictated by common sense. A contrary interpretation would exalt form over substance, as group disclosure under section 13(d)(3) would then hinge on the degree of formality of the arrangement. The purpose of the statute would unquestionably be frustrated, Water & Wall Associates, Inc. v. American Consumer Industries, [1973 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 93,943, at 93,756 (D.N.J.1973), and a tremendous and unwarranted burden would be placed on the plaintiff. See Bath Industries, Inc. v. Blot, 427 F.2d at 110.
In summary, our task is to sift through the record to determine whether there is sufficient direct or circumstantial evidence to support the inference of a formal or informal agreement or understanding. The proper standard in reviewing the district court's determination that Zimmerman was a member of a group is whether the determination is "clearly erroneous." See Corenco Corp. v. Schiavone & Sons, 488 F.2d at 218; Fed.R.Civ.P. 52(a).
Although appellant in his brief does not frame his objections to the Findings of Fact and Conclusions of Law explicitly as a challenge to the fact of his membership in the "group," he does state that he "had nothing to do with the Savoy transaction except to help out if asked to do so . . . ." Brief for Appellant at 56. We view this assertion as a rather broadly stated challenge to the
The first fact to be noted is that Zimmerman was not a stranger to Savoy at the time of the filing of the Schedule 13D on April 10, 1974. In fact, the district court found that Zimmerman had known Danenberg, the president of Savoy, for a number of years, F.F. 18, 407 F.Supp. at 627, and Zimmerman acknowledged having met Danenberg in 1963 or 1964, J.A. at 628-29.
That Zimmerman had a common purpose with the members of the group also appears to be well supported by the evidence. After the issuance of the 172,000 shares, three out of four of the Savoy directors resigned and were replaced. Weinkrantz became the new president of Savoy. The district court found, and we agree, that Zimmerman was a participant in the concerted activity that led to the change in leadership, F.F. 30, 407 F.Supp. at 628.
Weinkrantz testified that Zimmerman was involved in the initial discussions concerning who would become president of Savoy, and, in fact, that it was Zimmerman who initiated the discussions. J.A. at 221-22. Weinkrantz also agreed that Zimmerman was involved "in decisions relative to who would become members of the board of directors of Savoy." Id. at 251. According to Weinkrantz, Zimmerman suggested Fortescue as a potential director of Savoy, and Weinkrantz' suggestion of Elfenbein for the board was rejected because "[h]e wasn't known to Mr. Zimmerman." Id. at 251-52.
The Schedule 13D that was filed revealed that it was the "intention of such group that Savoy will . . . consider expanding the business of Savoy into aspects of the insurance business . . . ." Id. at 788. This "intention" was not, to say the very least, unfamiliar to Zimmerman. Zimmerman had, previous to the relevant Savoy transactions, made a two-phased attempt to control States, an insurance company. F.F. 6-17, 407 F.Supp. at 625-27. Weinkrantz testified that Zimmerman was a regular participant in discussions concerning the possibility of directing Savoy toward the life insurance business, J.A. at 186-87, which was thought to be "a great direction to go in." Id. at 187; accord, id. at 262. Fortescue, a director of Savoy after April 18, 1974, stated that Zimmerman attended the second meeting of the board of directors at which Danenberg discussed the general condition of Savoy, and at which there was a "general discussion about involving the company in a potential insurance company purchase or acquisition of an insurance company." Id. at 524-26. Zimmerman admitted that he suggested to Weinkrantz the possibility of a Savoy deal
Finally, but of great importance, are the facts relating to Zimmerman's involvement with Interstate, which itself was reported as a member of the group on the Schedule 13D. J.A. at 780-91. Although Zimmerman was not an officer or director of Interstate, there can be no doubt that he was, in practice, able to exert substantial influence over it. See F.F. 8-16, 407 F.Supp. 625-27.
On account of the transaction that transferred the 11,046 shares of States stock into Interstate, Zimmerman became the pledgee of 400,000 of the 500,000 shares outstanding of Interstate. F.F. 13, 407 F.Supp. at 626; J.A. at 146-56, 469-70. The underlying debt from Weinkrantz to Zimmerman was a note for $88,368, F.F. 12, 407 F.Supp. at 626, and was given in exchange for the transfer of the 11,046 shares. Weinkrantz's estimated net worth was between $40,000 and $50,000. F.F. 14, 407 F.Supp. at 626; J.A. at 483; see id. at 159. Despite the fact that the original note was torn up after the SEC investigative subpoena had been received, F.F. 14, 407 F.Supp. at 626; J.A. at 151-52, 156, it can readily be observed that Zimmerman had a substantial financial stake in Interstate. Interstate in essence "adopted" the Zimmerman goal of gaining control of States, see F.F. 9, 407 F.Supp. at 625, and the information given on the Schedule 13D manifests Interstate's continued interest in the life insurance business. On the basis of the foregoing evidence, we must conclude that Zimmerman had effectively joined forces with the other group members and should have been included on the Schedule 13D.
Sections 13(d)(1) and 13(d)(3) and the rules promulgated thereunder undoubtedly create the duty to file truthfully and completely. To the extent that the violation of sections 13(d)(1) and 13(d)(3) inheres in the Schedule 13D that was filed, it was this duty that was breached. Because section 13(d) was designed, in part, to allow investors an opportunity to know of potential changes in corporate control and to evaluate the situation, and because disclosure that is not accurate subverts this purpose, it is plain that section 13(d) requires the making of a completely truthful statement. GAF Corp. v. Milstein, 453 F.2d at 720. "The reporting provisions of the Exchange Act are clear and unequivocal, and they are satisfied only by the filing of complete, accurate, and timely reports." SEC v. IMC International, Inc., 384 F.Supp. 889, 893 (N.D.Tex.), aff'd mem., 505 F.2d 733 (5th Cir. 1974), cert. denied sub nom. Evans v. SEC, 420 U.S. 930, 95 S.Ct. 1131, 43 L.Ed.2d 402 (1975). See also SEC v. Great American Industries, Inc., 407 F.2d 453, 456-58 (2d Cir. 1968) (en banc), cert. denied, 395 U.S. 920, 89 S.Ct. 1770, 23 L.Ed.2d 237 (1969).
Furthermore, we are unable to view Zimmerman's violations of the Williams Act disclosure requirements as mere technical or inconsequential violations. Cf. Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 59, 95 S.Ct. 2069, 2076, 45 L.Ed.2d 12 (1975) (injunction denied to private litigant where "none of the evils to which the Williams Act was directed has occurred or is threatened . . . ."). In the case at bar, the fact of Zimmerman's participation, in view of his past troubles with the securities laws, is just the type of datum that is contemplated by the requirements of Schedule 13D, 17 C.F.R. 240.13d-101. See generally 113 Cong.Rec. 854-56, 24664-65 (1967) (remarks of Senator Williams). The group
Interestingly enough, appellant does not now challenge the district court's reliance on Affiliated Ute Citizens v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972), in the determination of materiality, in view of the Supreme Court's opinion in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976), decided after the opinion of the district court in the instant case. TSC Industries, in passing upon materiality in the context of proxy statements, gave the following explanation:
Id. at 449, 96 S.Ct. at 2132. This definition has subsequently been taken well outside the Rule 14a-9 context. See, e. g., Harkavy v. Apparel Industries, Inc., 571 F.2d 737, 740-41 & n.5 (2d Cir. 1978); SEC v. Koracorp Industries, Inc., 575 F.2d 692 at 701 (9th Cir. 1978); Goldberg v. Meridor, 567 F.2d 209, 218-19 (2d Cir. 1977), cert. denied, 434 U.S. 1069, 98 S.Ct. 1249, 55 L.Ed.2d 771 (1978).
We note that the determination of materiality is a mixed legal and factual question, and that, because it requires "delicate assessments" of the significance of inferences to a "reasonable" person, it is deemed a question generally best left to the trier of fact. TSC Industries, Inc. v. Northway, Inc., 426 U.S. at 450, 96 S.Ct. at 2133. However, in the last analysis, it remains an objective question, id. at 445, 96 S.Ct. at 2130, and it may be resolved as a matter of law when reasonable persons could not differ as to the importance of the fact under scrutiny, id. at 450, 96 S.Ct. at 2133. Therefore, although mindful of the Supreme Court's general admonition against deciding the issue of materiality as a matter of law, we nevertheless believe that this issue may be disposed of at this time. See Galfand v. Chestnutt Corp., 545 F.2d 807, 813-14 (2d Cir. 1976), cert. denied, 943 U.S. 435, 98 S.Ct. 1524, 55 L.Ed.2d 540 (1978).
Proof of actual reliance is, of course, not necessary to support a finding of materiality. TSC Industries, Inc. v. Northway, Inc., 426 U.S. at 447 n.9, 96 S.Ct. 2126 (citing Affiliated Ute Citizens v. United States, 406 U.S. at 153-54, 92 S.Ct. 1456). Obviously, the purpose of the reporting requirement is generally to ensure disclosure to investors. More particularly, the purpose of section 13(d) is to alert investors to potential changes in control, and to give them an opportunity to evaluate the effect of the potential change. GAF Corp. v. Milstein, 453 F.2d at 720.
The fact of Zimmerman's participation in and of itself may well not be so obviously important that reasonable minds would not differ as to its materiality. However, when coupled with disclosure of his criminal conviction, the overall effect is much greater. Senator Williams, the co-sponsor of the Act that added section 13(d), clearly manifested the idea that disclosure of background is crucial to informed decisionmaking by the investor. 113 Cong.Rec. 854-56, 24664-65 (1967). The Commission's regulations specifically required disclosure of all convictions within the preceding ten years. 17 C.F.R. § 240.13d-101 (1974). Under these circumstances, we conclude that, had proper disclosure been made at the outset, there is a substantial likelihood that a reasonable investor would view the "total mix" of information quite differently. We therefore
Appellant argues that the landmark decision of the Supreme Court in Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976), decided after the decision of the district court, vitiates the district court's conclusions because there was no finding of scienter. The holding in Ernst & Ernst v. Hochfelder to the effect that a private plaintiff must prove scienter to recover monetary damages under section 10(b) and rule 10b-5 rested, in large part, upon an analysis of the language of the section, the legislative history, the legislative intent, and section 10(b) vis-a-vis other provisions in the statutory scheme. A similar analysis of section 13(d)(1) leads us to conclude that the SEC need not prove scienter to establish a violation.
The language of section 13(d)(1) indicates clearly that it is a reporting, and not an antifraud, provision. In its analysis of section 10(b), the Supreme Court seized upon that section's use of the words "manipulative," "deceptive," "device," and "contrivance". 425 U.S. at 197, 96 S.Ct. at 1383. The Court reasoned that use of these terms manifested an "intent to proscribe a type of conduct quite different from negligence [footnote omitted]." Id. at 199, 96 S.Ct. at 1384. None of these terms is present in section 13(d)(1). Indeed, the plain language of section 13(d)(1) gives no hint that intentional conduct need be found, but rather, appears to place a simple and affirmative duty of reporting on certain persons.
The legislative history confirms that Congress was concerned with providing disclosure to investors, and not merely with protecting them from fraudulent conduct. Both the Senate Report and the House Report state that the general purpose of the bill was to amend "the Securities Exchange Act of 1934 by requiring the disclosure of pertinent information and [to] afford other protections to stockholders (1) when a person or group of persons seeks to acquire a substantial block of equity securities of a corporation . . .." S.Rep. No. 550, 90th Cong., 1st Sess. 1 (1967); H.R.Rep. No. 1711, 90th Cong., 2d Sess. 2 (1968), reprinted in  U.S.Code Cong. & Admin.News, p. 2811. More specifically, each Report specifies that "[t]he purpose of section 13(d) is to require disclosure of information by persons who have acquired a substantial interest, or increased their interest in the equity securities of a company by a substantial amount, within a relatively short period of time." S.Rep. No. 550, supra at 7; H.R.Rep. No. 1711, supra at 8, reprinted in  U.S.Code Cong. & Admin.News, pp. 2811, 2818. Thus, we note that the key provisions of the Senate and House Reports reflect a congressional intent to promote full disclosure by persons who have reached a certain level in terms of their acquisitions. Neither of these crucial passages explicitly distinguishes between conduct involving scienter and that not involving scienter, nor does either passage employ terms suggestive of fraud.
Therefore, the plain language and legislative history support the Second Circuit's view that "the purpose of section 13(d) is to alert the marketplace to every large, rapid aggregation or accumulation of securities, regardless of technique employed, which might represent a potential shift in corporate control . . . ." GAF Corp. v. Milstein, 453 F.2d at 717. Where there exists a paramount congressional intent to protect the public, the defendant's state of mind is not solely determinative of whether an injunction is available to the SEC. SEC v. World Radio Mission, Inc., 544 F.2d 535, 540-41 (1st Cir. 1976); SEC v. Texas Gulf Sulfur Co., 401 F.2d 833, 868 (2d Cir. 1968) (en banc) (Friendly, J., concurring), cert. denied sub nom. Coates v. SEC, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969). See also SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 194-95, 84 S.Ct. 275, 11 L.Ed.2d 237 (1963).
Zimmerman's past conduct is highly suggestive of his propensity to commit securities law violations and the likelihood that he will commit such violations in the future. SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1100 (2d Cir. 1972). His violation was not an isolated incident; he has not demonstrated that he understands his conduct to have been wrongful; and he does not give sufficient assurances against future violations. Furthermore, the nature of the appellant's business activities may present him with further temptations to violate the law. SEC v. Universal Major Industries Corp., 546 F.2d at 1048; SEC v. Management Dynamics, Inc., 515 F.2d 801, 807 (2d Cir. 1975). Under these circumstances, we believe that there is a sufficient probability of a future violation to uphold the district court on this issue. The absence of an express finding on the probability of future violations by the district court does not impair our ability to sustain the district court's injunction where the necessary factors are so obviously present. Id. at 807-08; SEC v. Culpepper, 270 F.2d 241, 250 (2d Cir. 1959).
Finally, appellant urges that it was error for the district court not to employ the "clear and convincing" standard of proof announced by this court in Collins Securities Corp. v. SEC, 562 F.2d 820 (D.C.Cir. 1977), for use in an administrative proceeding to revoke the broker-dealer and investment advisor registrations of the appellant. Reply Brief for Appellant at 11-14. Collins rested, in large part, upon two bases: that the appellant was accused of fraud, and that an affirmance meant a literal deprivation of livelihood. 562 F.2d at 824. Although it has come to be recognized that an injunction against future violations may be, in and of itself, a substantial burden on the party enjoined, compare SEC v. Capital Gains Research Bureau, Inc., 375 U.S. at 193, 84 S.Ct. 275 with SEC v. Commonwealth Chemical Securities, Inc., 574 F.2d at 99, and SEC v. Geon Industries, Inc., 531 F.2d 39, 54-55 (2d Cir. 1976), the imposition of an injunction to protect against future violations of reporting provisions is qualitatively different from that which was involved in Collins. The nature of the distinction was recently articulated by Judge Friendly:
Arthur Lipper Corp. v. SEC, 547 F.2d 171, 180-81 n.6 (2d Cir. 1976), cert. denied, 434 U.S. 1009, 98 S.Ct. 719, 54 L.Ed.2d 752 (1978).
The principal purpose of this type of injunction is, of course, to deter future violations, and not to punish the violator. Hecht Co. v. Bowles, 321 U.S. 321, 329, 64 S.Ct. 587, 88 L.Ed. 754 (1944). Furthermore, an injunction against violation of the reporting provisions does not ipso facto involve a deprivation of livelihood, and, as a practical matter, would not be nearly as extensive an impairment to Zimmerman as a revocation would be to a broker-dealer. The standard of proof is a matter for the judiciary to decide, see Collins Securities Corp. v. SEC, 562 F.2d at 824 (quoting Woodby v. Immigration & Naturalization Service, 385 U.S. 276, 284, 87 S.Ct. 483, 17 L.Ed.2d 362 (1966)), and we believe that, under the circumstances, it is best to adhere to a preponderance of the evidence standard. See GAF Corp. v. Milstein, 453 F.2d at 718.
C. The "Control" Theory of Liability
The district court found that the Forms 8-K and 10-K should have disclosed Zimmerman's identity and role in the Interstate-Mansdorf-Dunlap transaction. F.F. 25, 38, 407 F.Supp. at 627-28; C.L. 15, 407 F.Supp. at 630. The Commission argues that Zimmerman's past difficulties should have been disclosed. Brief of the SEC, Appellee at 8 n.6. In any event, Zimmerman's control is doubly significant because it is both a basis for imposing liability and a matter for disclosure.
With respect to the American Stock Exchange listing application and the letter to stockholders, the opinion of the district court recites merely that neither mentioned Zimmerman. F.F. 26, 28, 407 F.Supp. at 628; C.L. 16-17, 407 F.Supp. at 630-31. The Commission in its brief states that Zimmerman's identity should have been disclosed. Brief of the SEC, Appellee at 52, and then suggests that "[t]he information concerning Zimmerman, his behind-the-scenes orchestration of the takeover, and his control of the new management," id. at 53-54, should have been disclosed.
We begin by noting that the district court did not recite its statutory basis for imposing liability on the appellant. Our review of the materials submitted at trial by the Commission does not shed a great deal of light on the matter. The Commission's brief is refreshingly candid, but slightly hesitant, on this point, directing us first to section 20(a) and then to section 20(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a) & (b) (1976). Brief of the SEC, Appellee at 51 & n.51.
In relevant part, section 20 provides:
The history of the interpretation of section 20 in the courts has hardly been a history of consistency, especially in the context of SEC enforcement actions. The Sixth Circuit, by way of an alternative holding, has indicated its view that section 20(a) is not available to the SEC in an injunctive action because the SEC is not a "person" and because section 20(a) was intended to be employed solely in the context of private actions. SEC v. Coffey, 493 F.2d
On the other hand, the Second Circuit has suggested that section 20(a) is available to the Commission in enforcement proceedings. In SEC v. Management Dynamics, Inc., 515 F.2d at 812, the court stated that "[w]e agree with the Commission that with respect to SEC enforcement actions, § 20(a) was not intended as the sole measure of employer liability." Furthermore, the section 20(a) "good faith" defense has been allowed in an SEC injunctive action, as opposed to imposing liability on a respondeat superior theory. SEC v. Lum's, Inc., 365 F.Supp. 1046, 1063-64 (S.D.N.Y.1973) ("§ 20(a), and not respondeat superior, is the appropriate standard for liability here."); see 2 A. Bromberg, Securities Law: Fraud § 7.6(4), at 190.28 n.302 (1977).
Assuming that section 20(a) is available
The Commission maintains that there is effectively an implied finding of the unavailability of the defense because Zimmerman's contentions are "contrary to the good faith standard required by Section 20(a)." Brief of the SEC, Appellee at 51. However, the duty imposed by section 20(a) has been interpreted differently in different contexts.
D. The Alleged Violations of the Anti-fraud Provisions
The final area that we need consider is the district court's conclusions that Zimmerman violated section 17(a) of the 1933 Act, section 10(b) of the 1934 Act, and rule 10b-5 thereunder. To the extent that these antifraud violations are predicated on the Forms 8-K and 10-K, listing application, and letter to stockholders, there must be a remand for further findings. See text supra at 39-43. However, the district court also found that Zimmerman had violated these antifraud provisions in connection with the Schedule 13D that was filed. C.L. 14, 407 F.Supp. at 630. We are of the view that this aspect of the case also needs to be remanded.
We note initially that there exists no "standing" problem in this case because the SEC is the plaintiff. SEC v. National Securities, Inc., 393 U.S. 453, 467 n.9, 89 S.Ct. 564, 572, 21 L.Ed.2d 668 (1969). Nevertheless, section 10(b) finds application only "in connection with the purchase or sale of any security" and section 17(a) finds application only "in the offer or sale" of any security. At this stage, we are satisfied that section 10(b)'s "in connection with" requirement is satisfied by the filing of the Schedule 13D, coupled with the public trading in Savoy stock. It has been held that this requirement is satisfied whenever it may reasonably be expected that a publicly disseminated document will cause reasonable investors to buy or sell securities in reliance thereon, regardless of the motive or existence of contemporaneous transactions by or on behalf of the violator. SEC v. Texas Gulf Sulfur Co., 401 F.2d at 860-61; accord, Gottlieb v. Sandia American Corp., 452 F.2d 510, 516 (3d Cir.), cert. denied sub nom. Wechsler v. Gottlieb, 404 U.S. 938, 92 S.Ct. 274, 30 L.Ed.2d 250 (1971).
The "offer or sale" requirement of section 17(a) does not appear to have such a simple application, and its satisfaction in the opinion of the district court is not entirely clear to us. The agreement to have Savoy issue the 172,000 shares came in January 1974, the closing occurred on April 5, 1974, and the Schedule 13D was filed on April 10, 1974. Assuming arguendo that this transaction involved one or more "sales" within the meaning of section 17(a),
A third possibility is that the district court believed that the "offer of sale" element was satisfied by the "transformation" of the nature of the Savoy shares. "Whether [an exchange of assets for securities] is a purchase or sale . . . by altering the business of the issuing entity—is still an open question depending on the particular facts." 2 A. Bromberg, supra at § 6.5(113), at 134.5. In any event, a remand is in order with respect to the section 17(a) violation because further findings are necessary relative to the "offer or sale" requirement. See generally SEC v. Penn Central Co., 450 F.Supp. 908 (E.D.Pa.1978).
The question of whether scienter is necessary under section 17(a) may ultimately have a different resolution from whether it is necessary under section 10(b). See, e. g., SEC v. Coven, 581 F.2d 1020 at 1025-28 (2d Cir. 1978); SEC v. Texas Gulf Sulfur Co., 401 F.2d at 866-68 (Friendly, J., concurring); SEC v. Southwest Coal & Energy Co., 439 F.Supp. 820, 826 (W.D.La.1977); Note, The Scienter Requirement in SEC Injunctive Enforcement of Section 10(b) after Ernst & Ernst v. Hochfelder, 77 Colum.L.Rev. 419, 431 & n.72 (1977). But see SEC v. American Realty Trust Co., 429 F.Supp. 1148, 1171 (E.D.Va.1977) (scienter required under section 10(b) and section 17(a)). Because the language of section 17(a) parallels so closely that of rule 10b-5, see Ernst & Ernst v. Hochfelder, 425 U.S. at 213 n.32, 96 S.Ct. at 1390, and because some of the language of rule 10b-5 has been said to suggest the proscription of any type of misstatement or omission regardless of intent, id. at 212, 96 S.Ct. at 1390, there is a legitimate and significant doubt as to whether the liabilities to SEC injunctive enforcement under section 17(a) and section 10(b) will be coextensive with regard to scienter. See SEC v. World Radio Mission, Inc., 544 F.2d at 541 n.10. These are important questions, the resolution of which Ernst & Ernst v. Hochfelder has made less clear. Collins Securities Corp. v. SEC, 562 F.2d at 827; accord, SEC v. Commonwealth Chemical Securities, Inc., 574 F.2d at 101.
In order to reach an intelligent resolution of the issues, we must have them clearly placed in focus by adequate factual development. Because of the uncertainty regarding the "offer and sale" requirement of section 17(a) and because the district court did not reach a factual resolution as to the presence or absence of scienter, any comment we make may be premature.
We affirm the district court with respect to the violations of sections 13(d)(1) and 13(d)(3) of the Securities Exchange Act of 1934, and the rules thereunder. With respect to all other violations, we vacate and remand for a further illumination.
Appellant has raised the scope of the prohibitory language of the second and third paragraphs of the injunction as an issue in this case. The district court's Judgment of Permanent Injunction, 407 F.Supp. at 631, was predicated upon its Findings of Fact and Conclusions of Law. Because there remains doubt as to the existence of some of the violations underlying the injunction, we feel that the issue concerning the proper scope of this language is best considered, if at all, when there is a precise definition of all of the violations. Accordingly, we remand with instructions to the district court to modify the second and
Thus, a civil suit for an injunction may be brought, inter alia, where "a criminal proceeding, based upon the same illegal conduct, could be brought," Investors Funding Corp. v. Jones, 161 U.S.App.D.C. 420, 422, 495 F.2d 1000, 1002 (1974) (per curiam)—that is, where "any act or transaction . . . occurred." 15 U.S.C. § 78aa (1976).
The Securities and Exchange Commission (SEC or Commission) alleged three independent theories to support its contention of correct venue. The first theory was that Zimmerman caused or facilitated documents to be filed in Washington. The second theory was that Zimmerman made a telephone call from Washington, D.C., to Dallas. The third theory was that, where a complaint alleges a common scheme, venue good as to one defendant is good as to all. R.E. 4, at 3-6. See generally 4 A. Bromberg, Securities Law: Fraud § 11.3, at 247-48 (1977).
The Commission sought to have appellant enjoined, inter alia, in connection with certain filings required by the federal securities laws. The filings are a Form 8-K filed on or about February 11, 1974, a Schedule 13D filed on or about April 10, 1974, and a Form 10-K filed on or about May 24, 1974. J.A. at 16-18. Zimmerman was enjoined in connection with these documents. SEC v. Zimmerman, 407 F.Supp. 623, 629-31 (D.D.C.1976).
The act of filing has a locus in the District of Columbia, Investors Funding Corp. v. Jones, 161 U.S.App.D.C. at 423, 495 F.2d at 1003, as does the failure to file, Travis v. United States, 364 U.S. 631, 636, 81 S.Ct. 358, 5 L.Ed.2d 340 (1961). Thus, "venue for civil enforcement actions of the Commission, involving reports required to be filed in the District of Columbia, is here." Investors Funding Corp. v. Jones, 161 U.S.App.D.C. at 423, 495 F.2d at 1002.
On appeal, appellant challenges the district court's use of this procedure. Brief for Appellant at 36-37. He urges that some form of written communication was required. Id. As a practical matter, the fact that the trial was scheduled to commence in one week effectively precluded the use of a written inquiry. Surely, under the circumstances, it was desirable to ascertain as rapidly as possible whether the trial would be held on October 22 in Washington. We see no error in the district court's use of this procedure. See Fed.R.Evid. 201(b)(2); Wright & Graham, Federal Practice and Procedure: Evidence § 5106 (1977). See also United States v. 1,078.27 Acres of Land, More or Less, Situated in Galveston County, Tex., 446 F.2d 1030, 1034 (5th Cir. 1971), cert. denied sub nom. Galveston City Co. v. United States, 405 U.S. 936, 92 S.Ct. 945, 30 L.Ed.2d 811 (1972).
Gratz v. Claughton, 187 F.2d 46, 50 (2d Cir.), cert. denied, 341 U.S. 920, 71 S.Ct. 741, 95 L.Ed. 1353 (1951).
In the instant case, Zimmerman's counsel did allege generally that the Dallas witnesses had been contacted, but he did not recite specifics, nor did he in fact claim that he had contacted the witnesses personally. See J.A. at 75-101. As discussed above, these witnesses were identified and their expected testimony was summarized only one week before the trial was scheduled to begin. See text supra at 4, 14. To the extent that specific examples of inability to obtain testimony were given, they were given at the same time. See J.A. at 76-101.
This section was amended by the Domestic and Foreign Investment Improved Disclosure Act of 1977, Pub.L. No. 95-213, § 202, 91 Stat. 1498-99. See also § 13(g) & (h), 15 U.S.C.A. § 78m(g) & (h) (1978).
The contents of Schedule 13D have been revised. Under the former provisions, Note B would require disclosure of certain information for each member of a group filing the statement and for each person controlling a member of the group. Item 2 required disclosure, inter alia, of the name and address of every person covered by Note B, as well as any criminal convictions of such persons within the last ten years. 17 C.F.R. § 240.13d-101 (1974).
With respect to the revised form, disclosure must still be made for each member of a group, as well as for each person controlling a member pursuant to Instruction C. Further, Item 2 now requires disclosure of criminal convictions within the previous five years, see 17 C.F.R. § 240.13d-101 (1977), and the Commission has now elected to require disclosure, inter alia, of whether a person covered by Instruction C has been the subject, within the five previous years, of a decision, final order, or judgment of injunction against future violations. See SEC Release No. 34-14692, 43 Fed.Reg. 18498 (1978). Thus, under both the old rules and the amended rules, a group member would be required to make disclosure at minimum, of a criminal conviction as recent as five years.
Finally, we note that the Commission has now provided explicitly that a group may make a single joint filing or that each member may make an individual filing. See Rule 13d-1(e)(1)(ii) & (2), SEC Release No. 34-14692, 43 Fed.Reg. 18496 (1978).
In 1977, the Commission deleted "ten days after the close of any month during which any of the events specified in that form occurs," and in lieu thereof added, "the period specified in that form." SEC Release No. 34-13156, 42 Fed. Reg. 4424 (1977).