Opinion for the court filed by Circuit Judge TAMM.
The Securities and Exchange Commission filed this action seeking to have the United States District Court for the District of Columbia enjoin the Falstaff Brewing Corporation and the chairman of its board and controlling stockholder, Paul Kalmanovitz, from future violations of certain provisions of the Securities Exchange Act of 1934 (Act), 15 U.S.C. §§ 78a-78hh (1976). After considering oral testimony, depositions, and documentary evidence, Judge Howard F. Corcoran held that both Falstaff and Kalmanovitz had violated the Act and issued the injunctions sought. See SEC v. Falstaff Brewing Corp., [1978 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 96,583 (D.D.C. 1978). Falstaff and Kalmanovitz appeal, and we affirm.
The facts of this case are intricate and will be developed more fully in discussing each challenge made to the district court's decision. For now, we shall summarize the overall factual background, the district judge's holding, and the grounds of appeal.
Falstaff, an independent, publicly owned brewer, suffered severe financial losses for several years in the late 1960's and early 1970's. In 1974 Falstaff sold its San Francisco brewery to the General Brewing Corporation, a company beneficially owned by Paul Kalmanovitz, a wealthy businessman active in the beer industry. General Brewing would continue to produce beer under the Falstaff name.
Following this transaction, Falstaff's management decided to probe Kalmanovitz to see if he was interested in investing in Falstaff itself. On March 10, 1975, Kalmanovitz entered into an agreement with Falstaff under which he would invest $10 million in cash and personally guarantee another $10 million in loans. In return, he would receive preferred stock sufficient to give him a majority voting interest in the company, together with an option to purchase more. Falstaff sent a proxy statement to the company's shareholders, who approved the transaction at an April 28 meeting.
After assuming control of Falstaff, Kalmanovitz failed to report his stock acquisition to the Commission for more than one year. In addition, Falstaff failed to file certain required reports with the Commission and filed others that the Commission believed were materially misleading.
In 1977 Falstaff issued another proxy statement to its shareholders, seeking approval to pay dividends on Kalmanovitz's preferred stock in common stock rather than in cash. The Commission contends that this proxy statement misstated certain material facts and omitted others. The Commission instituted this action to block the 1977 shareholders' meeting and to obtain a permanent injunction against Falstaff and Kalmanovitz ordering them not to violate certain provisions of the Act in the future.
After reviewing the evidence, Judge Corcoran concluded that Falstaff and Kalmanovitz committed the following violations:
On the basis of these and other findings, Judge Corcoran concluded that there existed a reasonable likelihood that the defendants would engage in further misconduct. He therefore enjoined them from violating these sections and rules in the future. Both defendants also challenge the injunctions.
We shall discuss, in order, the violations with regard to the 1975 proxy statement, the 1975 and 1976 reports, the 1977 proxy statement, and the section 10(b) violations. We then shall turn to the reasonable likelihood of further misconduct and the propriety of entering the injunctions.
II. THE 1975 PROXY STATEMENT
Falstaff and Kalmanovitz concede that the proxy statement mailed to shareholders in April of 1975 was materially false and misleading in several respects, and Falstaff now admits its liability for these deficiencies. Kalmanovitz, however, contests his liability. He argues that because he was not yet a shareholder, an officer, or a director of Falstaff, the district court should not have held that he violated the Act and the relevant Commission rules. We nevertheless agree with Judge Corcoran that Kalmanovitz, as well as Falstaff, is liable for the misstatements.
A. The Facts
At the time Kalmanovitz and Falstaff opened their negotiations early in 1975, Falstaff was in severe financial distress. It had lost $3.8 million in 1974. It owed $12.5 million in low-interest loans to two insurance companies and $16 million in notes and lines of credit to three banks, interest at 1½ % above prime. In the fall of 1974, these institutional lenders demanded that Falstaff pool all its assets, aside from accounts receivable and inventories, to secure the $28.5 million debt. In January 1975 the lenders executed a "Collateral Agency Agreement," under which they agreed among themselves to share all of Falstaff's payments on a pro rata basis. Falstaff's board of directors approved this arrangement on January 27, 1975. Later, on March 31, Falstaff acceded to the insurance lenders' demand that it acknowledge any failure to repay pro rata would constitute a default and thus would entitle them to call their loans immediately (the "March waivers").
In the meantime, Kalmanovitz and Falstaff completed arrangements for Kalmanovitz's investment in Falstaff. Kalmanovitz would purchase 100,000 shares of a new Class A preferred stock for $10 million, giving him a majority voting interest in Falstaff.
On March 10, 1975, Falstaff and Kalmanovitz signed an agreement reflecting these arrangements. The district court found that, at this time, Kalmanovitz already knew of the liens on Falstaff's assets and the pro rata restrictions in the Collateral Agency Agreement. He also knew by April 4 that Falstaff had agreed to the March waivers, including their provision that payment other than on a pro rata basis would be deemed a default on the $12.5 million in insurance loans. Kalmanovitz nonetheless planned to use the $20 million raised by Falstaff in the transaction ($10 million from Kalmanovitz and $10 million from deferral of payments to Continental Can) to pay off the $16 million in high-interest bank notes, even though doing so would violate the March waivers and the Collateral Agency Agreement. Kalmanovitz believed that the bank loans, with their high interest rate, were a "cancer" on the company.
Falstaff's directors approved the Kalmanovitz transaction on March 31, 1975, and called a shareholders' meeting for April 28 to ratify the arrangement. In early April, the directors mailed a proxy statement to the shareholders. Kalmanovitz had seen a first draft of the proxy statement on or before March 22 and read the final version shortly after its distribution. After the latter reading, he thought that the statement was fraudulent but elected to say nothing about it.
Judge Corcoran also concluded that the proxy statement was materially deficient in several respects. First, it failed to disclose two potential conflicts of interest: (1) Kalmanovitz's beneficial ownership of General Brewing Corporation, which had purchased Falstaff's San Francisco brewery and was producing Falstaff beer, and (2) Kalmanovitz's agreement to guarantee the Continental Can credit. Second, the proxy statement, though mentioning the loans from the banks and the insurance companies, did not apprise the shareholders of the defaults and liens, the Collateral Agency Agreement, the March waivers, or Kalmanovitz's plan to pay off the bank loans despite these restrictions. Third, the proxy statement failed to disclose with sufficient clarity that approval of the sale of stock to Kalmanovitz would give him effective control of Falstaff and would dilute the present shareholders' control.
B. Kalmanovitz's Liability
Kalmanovitz contests his liability under section 14(a) of the Act. He argues that because he was not yet part of Falstaff's management, which issued the statement, and because he neither drafted the statement nor controlled its contents, he was under no obligation to correct any false or misleading information it contained. We do not agree.
As the Supreme Court has said time and again, any effort to construe a statute, including the securities laws, must begin with the language of the statute itself. E.g., Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197, 96 S.Ct. 1375, 1382, 47 L.Ed.2d 668 (1976). Accord, e.g., Lewis v. United States, 445 U.S. 55, 100 S.Ct. 915, 918, 63 L.Ed.2d 198 (1980). Section 14(a) of the Act forbids "any person ... to solicit or to permit the use of his name to solicit any proxy" in violation of Commission rules. 15 U.S.C. § 78n(a) (1976).
Of course, the simple appearance of one's name in a proxy statement does not trigger liability for any misstatement appearing therein. Instead, there must have been "a substantial connection between the use of the person's name and the solicitation effort." Yamamoto v. Omiya, 564 F.2d 1319, 1323 (9th Cir. 1977). For example, this substantial connection is present in the case of director nominees listed in the proxy statement:
Chris-Craft Industries, Inc. v. Independent Stockholders Committee, 354 F.Supp. 895, 915 (D. Del. 1973).
We agree with the reasoning in Chris-Craft and believe it applies to the situation now before us.
Our conclusion comports with the policy behind the regulation of proxy solicitations. In the words of Ferdinand Pecora, counsel to the Senate Committee on Banking and Currency when it considered the Act:
Stock Exchange Practices: Hearings Before the Sen. Comm. on Banking & Currency, 73d Cong., 1st Sess. (pt. 16) 7716 (1934). Falstaff shareholders in effect were asked to sign just such a blank check when they received a proxy statement, nominally from the management, that failed to disclose material information needed for them to cast an intelligent vote. Permitting Kalmanovitz to escape liability would mean that anyone attempting to take control of a corporation could mislead the existing shareholders with impunity simply by finding a nominal solicitor willing to violate the law. The Supreme Court has written that "Congress intended securities legislation enacted
III. VIOLATIONS OF SECTION 13(a)
The district court also held Falstaff and Kalmanovitz liable for failing to file required reports and for filing inaccurate reports with the Commission. Specifically, Falstaff did not file a Form 8-K when Kalmanovitz went forward with his plans and prepaid the bank loans, when the insurance lenders thereafter declared a default under the March waivers, or when Falstaff issued a note to Continental Can for the payment deferrals. A Form 8-K filed in January of 1976 noted the litigation with the insurance lenders but, in the district court's view, did not reveal adequately the basis of the action and thus was materially false and misleading. In addition, at no time did Falstaff or Kalmanovitz correct the errors made in the 1975 proxy statement. Falstaff and Kalmanovitz challenge these conclusions and some of the facts underlying them. Kalmanovitz in addition asserts that Judge Corcoran's failure to make an explicit finding that he aided and abetted Falstaff's violations precludes any finding of personal liability on his part.
A. Current Reports on Form 8-K
Section 13(a) requires all issuers subject to the Act's registration requirements to submit periodic reports to the Commission containing such information as the Commission may direct through its rules. 15 U.S.C. § 78m(a) (1976).
In January of 1976, Falstaff filed a Form 8-K stating that it had paid off the bank loans and had entered court seeking a declaration of the rights of the various parties to the insurance loans.
We believe Judge Corcoran properly found that the January 1976 Form 8-K failed to disclose needed information. The Form 8-K nowhere mentions that Falstaff itself had agreed to pro rata repayment. Instead, it states flatly that Falstaff "had never been in default" and then reports that the insurance lenders alleged Falstaff was in default. Joint Appendix (J.A.) at 340, quoted in note 13 supra. The omission of any description of the March waivers executed by Falstaff makes the Form 8-K misleading. Only by a painstaking reading could one perhaps infer that the prepayment was the ground of the default, thus making the suit more than a vexatious action brought by one group of lenders dissatisfied that another group had been prepaid. By failing to disclose in the Form 8-K material information necessary to make the statements in it not misleading, Falstaff and Kalmanovitz violated rule 12b-20.
B. Annual Reports on Form 10-K
In a description of its antitrust action against the insurance company lenders, Falstaff's 1975 Form 10-K stated:
J.A. at 285. The district court found this passage misleading because it did not disclose that Falstaff's prepayment of the bank loans had led the insurance lenders to declare a default. The court then concluded that the Form 10-K's violated rule 12b-20 by failing to describe adequately Falstaff's relations with its lenders, the litigation with them, the pro rata restrictions, the bank loans, and the subsequent declarations of default.
Again, we do not believe that Judge Corcoran's finding was clearly erroneous. The Form 10-K states only in the most general of terms the basis of the lenders' case, i. e., Falstaff's alleged violation of the March waivers and the Collateral Agency Agreement; it does not discuss the nature of the violations or the events underlying the claimed breaches. Failure even to mention facts as material as Falstaff's own agreement to repay the loans pro rata misleads investors and shareholders by denying them critical information about major litigation and, indirectly, about the performance of the company's management. With the disclosure presented in a materially misleading way, we affirm the district court's holding that this Form 10-K violated rule 12b-20.
C. Kalmanovitz's Liability
Kalmanovitz argues vociferously that even if the Form 8-K's and 10-K's violated the Act and the relevant Commission rules, the district court did not expressly make the findings of fact and conclusions of law necessary to render him liable as an aider and abettor.
In discussing the facts surrounding the filing of the Form 8-K's and 10-K's, the district court several times found Kalmanovitz to have been a knowing and active participant. First, on August 29, 1975, outside counsel to Falstaff sent Kalmanovitz a copy of a letter that expressed concern over Falstaff's compliance with the securities laws. The letter explicitly recommended filing a Form 8-K regarding the declarations of default. Second, Kalmanovitz directly participated in the decision not to include a description of the loan defaults in
Despite these express findings of fact, Kalmanovitz argues that the district court could not hold him liable under section 13(a) without explicitly stating that he was an aider and abettor. Having reviewed Judge Corcoran's opinion thoroughly, we disagree. We do not believe that when a judge makes ample and unambiguous findings of fact, his conclusion that the defendant violated the law must be overturned simply because he did not state the theory he obviously was using in haec verba. The Commission charged Kalmanovitz in part on an aiding-and-abetting theory. See J.A. at 1 (complaint). The opinion of the district court laid all the necessary predicates for Kalmanovitz's liability under such a theory and then expressly concluded that he was liable. That it neglected to state explicitly one link in the chain is regrettable, but this omission does not undermine the chain, the validity of the link clearly implied, or the strength of the ultimate conclusion. We therefore affirm Kalmanovitz's liability under section 13(a) and rules 13a-1, 13a-11, and 12b-20.
Interpolating facts and legal theories from insufficiently thorough opinions is not an exact science, but this observation does not mean we cannot make inferences when the route to them is short and safe. We strongly believe that district courts should lay out their findings and conclusions clearly, and we will remand for illumination when we are left in the dark. Nevertheless, we may proceed when the light, though slightly dimmed, is nonetheless amply bright to guide us in our review. See SEC v. Savoy Industries, Inc., 587 F.2d 1149, 1168 (D.C. Cir. 1978), cert. denied, 440 U.S. 913, 99 S.Ct. 1227, 59 L.Ed.2d 462 (1979).
IV. THE 1977 PROXY STATEMENT
In April of 1977, Falstaff sent to its shareholders a proxy statement for its upcoming annual meeting.
The district court found the 1977 proxy statement materially deficient in several respects. First, it did not disclose Kalmanovitz's voting control of Falstaff. Second, it did not detail (1) the number of common shares Kalmanovitz would receive under the proposed transaction, (2) the source of the common stock, (3) the amount payable to Kalmanovitz under the existing terms of the preferred stock, or (4) background information explaining how the proposal would conserve Falstaff's cash resources. Third, the statement referred to an audit committee that in fact never met. Fourth, it stated that the Commission had "no comment" on the proxy statement when, in fact, the Commission had informed Falstaff that it regarded the statement to be materially deficient.
Falstaff and Kalmanovitz argue that the proxy statement adequately disclosed Kalmanovitz's control and potential conflicts of interest and that the references to the audit committee were not false and misleading. They contend any omissions were trivial items of little concern to investors.
A. Kalmanovitz's Control
The district court held that the 1977 proxy statement was materially false and misleading, in part because it did not disclose adequately that Kalmanovitz controlled Falstaff and its board. The court believed that a clear statement of his control was needed to place the board's recommendation of a stock dividend to Kalmanovitz in perspective: shareholders then could vote on the proposal knowing not only that Kalmanovitz had a vital interest in the approval of the stock dividend but also that he controlled the board that ultimately would vote on it.
The 1977 proxy statement said only: "Mr. Paul Kalmanovitz, who is Chairman of the Board of the Company, has a direct interest in this matter as a result of his beneficial
B. The Audit Committee
The 1977 proxy statement also referred to an audit committee consisting of Kalmanovitz and two other directors. Judge Corcoran found that in fact this committee never met or functioned. He concluded that mentioning this nonexistent committee created the false impression that the board of directors was exercising careful oversight of the company's finances; the statement, therefore, was false and misleading.
The defendants attempt to undermine this finding by submitting that even if not functioning as a formal committee, the named individuals were overseeing the company's finances and thus the statement was not false. We nevertheless believe that the district court's finding was not clearly erroneous. The existence of a committee implies a structured investigation and analysis of a company's fiscal welfare. Informal procedures may be adequate, but formal entities such as committees create at least the impression of great care and precision through detailed review and oversight. Stating that an audit committee, with its implication of careful oversight, existed when it did not thus is misleading, particularly when the proxies are being sought for a meeting at which directors will be selected; i. e., when one major issue before the shareholders is whether to retain the current management. Therefore, we agree that this statement in the 1977 proxy materials was false and misleading and that its inclusion violated the Act and the relevant rules.
V. SECTION 10(b) AND RULE 10b-5
The district court also held that Falstaff and Kalmanovitz had violated section 10(b) of the Act, 15 U.S.C. § 78j (1976),
We need pause but briefly on the defendants' arguments that the misstatements and omissions were immaterial. Materiality is a question of fact, and information is material if "there is a substantial likelihood that a reasonable shareholder would consider [information] important in deciding how to vote." TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976). Our discussions of the violations of sections 13(a) and 14(a) and the rules thereunder amply demonstrate that Falstaff and Kalmanovitz indeed made false and misleading statements and omitted information necessary to make other remarks not false or misleading. Their attempt to contest materiality here is meritless.
The Supreme Court has held that in private actions under rule 10b-5, the plaintiff must prove that the defendant acted with scienter, i.e., "intent to deceive, manipulate, or defraud." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 & n.12, 96 S.Ct. 1375, 1381 & n.12, 47 L.Ed.2d 668 (1976). The Court has not yet decided whether the Commission must prove scienter in an administrative enforcement proceeding. See id. at 193 n.12, 96 S.Ct. at 1381 n.12.
Falstaff apparently does not challenge the finding of scienter on its part. Kalmanovitz, however, argues that the district court could not find that he acted with scienter. We disagree. In discussing scienter, the district court specifically restated its earlier conclusion that Kalmanovitz had known of the material omissions and misstatements in the 1975 proxy statement, a conclusion that we have affirmed, see pp. 68-70 supra. It also reiterated that Kalmanovitz had known of the errors in the 1977 proxy statement. Moreover, in conjunction with the violations of section 13(a), the district court concluded that Kalmanovitz had known of the omissions and failures to file. See pp. 72-73 supra.
Kalmanovitz contends that scienter requires an inquiry into "the defendant's state of mind — his subjective belief as to the legality of his action ...." Brief of Appellants at 41. We strongly disagree. Knowledge means awareness of the underlying facts, not the labels that the law places on those facts. Except in very rare instances, no area of the law — not even the criminal law — demands that a defendant have thought his actions were illegal. A knowledge of what one is doing and the consequences of those actions suffices. We therefore hold that because Kalmanovitz knew the nature and consequences of his actions, he acted with scienter.
VI. THE INJUNCTIONS
The district court entered orders enjoining Falstaff and Kalmanovitz, their agents, and their employees from committing further violations of the securities laws. Because prospective relief is designed to prevent future misconduct rather than to compensate for or to punish past violations, see Hecht Co. v. Bowles, 321 U.S. 321, 329, 64 S.Ct. 587, 591, 88 L.Ed. 754 (1944), cited in SEC v. Savoy Industries, Inc., 587 F.2d 1149, 1168 (D.C. Cir. 1978), cert. denied, 440 U.S. 913, 99 S.Ct. 1227, 59 L.Ed.2d 462 (1979), the court must determine "`whether the defendant's past conduct indicates ... that there is a reasonable likelihood of further violation[s] in the future.'" SEC v. Savoy Industries, Inc., 587 F.2d at 1168 (quoting SEC v. Commonwealth Chemical Securities, Inc., 574 F.2d 90, 99 (2d Cir. 1978) (emphasis in original)). Falstaff and Kalmanovitz challenge the injunctions by reiterating earlier assertions of incorrect analysis of the evidence, by raising new objections to certain additional findings of fact, and by arguing that the Commission did not demonstrate a reasonable likelihood of further violations. We conclude that Judge Corcoran acted properly.
A. Factual Basis of the Injunctions
In addition to the violations discussed above,
1. Disregard of Warnings
The defendants do not dispute the district court's finding that they continued to solicit proxies with the 1977 statement even after the Commission informed the company that it regarded the document as being materially deficient. Instead, they argue that a judge may not take this conduct into account in evaluating the likelihood of future violations. They believe that a court may not fault a party for persisting in its belief that its conduct is lawful and acting on that behalf, at least until a court holds the party in violation of some legal duty.
In the present context, we believe that the district court could consider Falstaff's proceeding with the 1977 proxy statement. That document, we have concluded, was indeed deficient. The Commission so warned Falstaff. The company's own employees questioned the adequacy of the disclosures. Failure to follow Commission — and internal — advice may not be a violation itself, but it surely suggests that in the future, apprised again of potential violations, Falstaff might proceed undeterred as it did in 1977. Ignoring warnings of possible violations is relevant to the particular task facing a judge in ruling whether to grant an injunction; namely, assessing the likelihood that a defendant will violate the law again.
2. Reports by Directors
Falstaff also maintains that the failure of certain executives to file reports under section 16(a) of the Act, 15 U.S.C. § 78p(a) (1976),
3. Brewer's Bond
Falstaff, in a letter from counsel dated July 1, 1977, informed the district court that "the bond which is required of every brewery by federal law to ensure payment of taxes has been cancelled by Falstaff's bonding company as a result of this suit." J.A. at 817. The district court found that this representation was false and used it as further evidence pointing to a likelihood of future violations.
The defendants argue that the statement was not false and that its use was unfair surprise. We disagree. Although Falstaff points to several factors that it claims make this representation accurate in context, we have found nothing in the record indicating that any insurer actually had cancelled a
B. Likelihood of Future Violations
The defendants' major objections come in the district court's analysis of the facts and its conclusion that both defendants are reasonably likely to violate the securities laws again. Principally, the defendants argue that despite their number, all the charges ultimately stem from the mistakes made in the 1975 proxy statement. The management that prepared that statement is no longer with Falstaff; therefore, Falstaff is not likely to make the same errors in the future. Moreover, Kalmanovitz, due to his age and his purported good-faith efforts to comply with the securities laws, is not likely to commit further violations. We find that these objections lack merit and therefore affirm the granting of the injunctions.
1. Relation to the 1975 Proxy Statement
We cannot agree with the defendants that all the relevant errors relate to the 1975 proxy statement and thus to management no longer with Falstaff. Many of the violations result from failure to file accurate reports with the Commission after the new management took over. See pp. 70-72 supra. In addition, the new management prepared the 1977 proxy statement, see pp. 73-75 supra, and is responsible for the misstatements in the November 1975 letter to Falstaff shareholders, an October 1975 letter to the Commission, and the July 1977 letter to the district court concerning brewer's bonds. Kalmanovitz, we have held, was himself liable for the 1975 proxy violations, and the failures to file under section 16(a) are violations by the present directors. Although the sins of the corporate fathers should not be visited upon succeeding generations of management, see SEC v. Cenco, Inc., 436 F.Supp. 193, 199 (N.D. Ill. 1977), the transgressions here were the acts and omissions of persons currently in control of Falstaff. Ample evidence of repeated misconduct supports the district court's remark that these errors "have not been isolated or random, but rather have been part of a chronic pattern of violations, which has continued up to the present time." SEC v. Falstaff Brewing Corp. [1978 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 96,583, at 94,472 (D.D.C. 1978). Judge Corcoran's conclusion that these factors indicate a reasonable likelihood of future violations and his concomitant decision to issue an injunction were proper.
2. Kalmanovitz's Good Faith
At oral argument, counsel contended vigorously that we should vacate the injunction against Kalmanovitz because any errors on his part occurred due to ignorance and not to bad faith.
Our review of this case demonstrates clearly that both Falstaff and Kalmanovitz violated the securities laws in numerous ways. Some charges, to be sure, overlap, but the record nonetheless reveals multiple occasions on which they withheld information, failed to file required reports, or filed inaccurate ones. In light of these violations, the district court acted properly in enjoining both Falstaff and Kalmanovitz from further misconduct. Therefore, the judgments of the district court are
No one disputes that the transaction's giving Kalmanovitz majority control is a material fact. Although "corporations are not required to address their stockholders as if they were children in kindergarten," Richland v. Crandall, 262 F.Supp. 538, 554 (S.D.N.Y.1967), disclosure may not be buried in a mass of information that, when pieced together, might give the correct impression. A court is not clearly erroneous when it finds inadequate a proxy statement that spreads over two pages the data necessary to calculate the impact of a proposed transaction on control of the company. See Gould v. American-Hawaiian Steamship Co., 535 F.2d 761, 774 (3d Cir. 1976).
15 U.S.C. § 78n(a) (1976).
Rule 14a-3 requires every proxy solicitation to conform to Schedule 14A. In a solicitation by management for the annual shareholders' meeting, the statement must be accompanied by an annual report that complies with the specifications of Form 10-K, with some additions. 17 C.F.R. § 240.14a-3(a)-(b) (1979). Rule 14a-9 provides in relevant part:
Id. § 240.14a-9(a).
Kalmanovitz also argues that the district court erred in remarking that the information relating to the Continental Can transaction and the plans to retire the high-interest debt, which the proxy statement failed to disclose, "was information which rested primarily with Kalmanovitz." SEC v. Falstaff Brewing Corp., [1978 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 96,583, at 94,469 (D.D.C. 1978). We do not believe, however, that Kalmanovitz's relative knowledge is important; rather, what is relevant is Kalmanovitz's awareness of this information and his failure to disclose it when he concluded that the proxy statement was fraudulent.
15 U.S.C. § 78m(a) (1976).
In addition, we decline to rule on the defendants' contention that the bank and the insurance loans and the Continental Can credit were not securities and thus Form 8-K as it then read did not oblige Falstaff to report the payment of the bank loans, the insurance lenders' declaration of default, and the issuance and payment of the note to Continental Can. (Form 8-K at the time required reports only on changes and defaults on "securities.") The defendants, in their objections before the district court to the Commission's proposed conclusions of law, did not raise the issue of whether the loans and notes were securities. See J.A. at 187 (arguing only overtechnicality, immateriality, and ultimate disclosure). We will not permit them to embark on this theory for the first time on appeal. Judge Corcoran's ruling must stand.
J.A. at 340 (emphasis added).
The defendants also argue that failure to include the Continental Can transaction on the 1976 Form 10-K was immaterial because the loan was repaid fully in 1975. The district court's opinion is somewhat vague on this point. It nowhere expressly finds that this omission was material, but it lists the Continental Can transaction among several deficiencies that apply to both the 1975 and the 1976 Form 10-K's. See SEC v. Falstaff Brewing Corp., [1978 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 96,583, at 94,462, 94,471 (D.D.C.1978). Because this error is merely cumulative of the other deficiencies found in the 1976 Form 10-K, we do not believe it necessary to determine precisely what the district court held, for even if its conclusion were improper, remand on this point would be unnecessary.
Judge Corcoran's opinion contains explicit findings on Kalmanovitz's participation in and knowledge of the § 13(a) violations. No goodfaith defense exists under that section. As we note in the text, findings are present on all the elements of aiding and abetting, followed by the ultimate conclusion of liability. All that is missing is a statement that aiding and abetting is the theory underlying the conclusion. This omission is a far cry from the multitude of missing findings and conclusions in Savoy.
J.A. at 253 (emphasis added). Obviously, this remark substantially misrepresented the Commission's position. The defendants do not appear to challenge the district court's finding that this passage was false and misleading.
15 U.S.C. § 78j (1976).
17 C.F.R. § 240.10b-5 (1979).
J.A. at 772. The district court found that these remarks were misleading in failing to disclose Falstaff's acquiescence to the Collateral Agency Agreement or its execution of the March waivers. We do not believe this finding is clearly erroneous.