Full opinion text
FINDINGS AND OPINION MILTON POLLACK, Senior District Judge: THE ACTION This is a civil insider trading liability action, brought by the Securities and Exchange Commission (“SEC”), authorized by Section 21(d) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78u(d), seeking an injunction and other ancillary relief, including disgorgement of ill-gotten gains, against defendants based on defendants’ violations of the antifraud provisions of the securities laws and regulations. Subject-matter jurisdiction is posited on Sections 21(e) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(e) and 78aa. This action arises from the defendants’ purchases of call options on the common stock of St. Joe Minerals Corporation (“St. Joe”), as well as of the stock itself, on March 10, 1981, the day immediately prior to the announcement by Joseph E. Seagram & Company of a hostile tender offer for all of the outstanding common stock of St. Joe. The issues were presented to the Court at a Bench trial. The case reveals a crass abuse and betrayal of a personal and professional relationship of trust and confidence for personal gain. The principal defendant, Tome, exploited his confidential relationship with Seagram and with its Chairman of the Board and Chief Executive Officer, Edgar Bronfman, to obtain and misuse nonpublic information of Seagram’s preparations to bid for control of St. Joe at $45 per share of common stock. Acting a day ahead of the announcement of that bid, on March 10, 1981, Tome positioned himself and his tip-pees to gamer millions of dollars in unlawful gains by purchasing vast quantities of call options on St. Joe stock, and the stock itself, which was trading at about $30 per share, from unsuspecting sellers while Seagram was putting the finishing touches on the as-yet unannounced bid. Within days after the March 11th announcement of the hostile tender offer, which sent the St. Joe stock up to over $45 per share and skyrocketed the options accordingly, Tome and his tippees cashed in on their St. Joe call options and common stock. Tome fraudulently concealed his misappropriation of this confidential corporate information and his breach of the confidential relationship from Bronfman and from Seagram, falsely denying that he had made any St. Joe purchases and falsely denying any participation in the market when confronted and questioned specifically by Bronfman. As his identity in the illegal conduct came to light through a prompt SEC investigation, Tome fled this country and has remained abroad since. His conduct, and that of his cohorts, was meticulously pieced together by the SEC, resulting in this suit. I. BACKGROUND A. Identity and Interrelationship of Defendants Those involved in the misconduct complained of form an intricate international web which needs to be detailed in order to understand its ramifications. 1. Tome Giuseppe B. Tome (“Tome”) is an Italian national who resides in Switzerland. He first became involved in the securities industry in 1959 as a Registered Representative in the Milan, Italy office of Bache & Co. (“Bache”). Through the years, Tome was promoted within the Bache organization, eventually becoming Chairman of Bache & Co. (Overseas) S.A., located in Geneva, Switzerland. Tome left Bache in 1973 for a position as Vice President of E.F. Hutton & Company, Inc. (“Hutton”). At Hutton, Tome was involved with their international division, eventually managing several hundred registered representatives located in twenty-two offices worldwide. When he resigned from Hutton on February 3, 1979, Tome was President of E.F. Hutton International, S.A., and was on the Board of Directors of Hutton. Sometime after leaving Hutton in 1979, Tome formed Compagnie Pour le Financement et l’Investissement, S.A. (“Finvest Geneva”), a securities firm headquartered in Geneva, Switzerland, of which he is the President and Chief Executive Officer. Finvest Geneva is controlled by, and is part of, a larger holding company, Infinvest Holdings, N.Y., a Netherland Antilles corporation. See infra note 5. In order to execute securities trades on the United States exchanges, Tome was also a registered representative from January 1980 until June 30, 1981, with Baird-Patrick & Co., Inc. (“Baird-Patrick”), a United States broker-dealer. Tome forwarded, and sometimes himself initiated, orders to buy or sell securities traded on U.S. exchanges, primarily the New York Stock Exchange, for the accounts of his clients, or for companies affiliated with Finvest Geneva, to Baird-Patrick for execution. Tome regularly visited the United States for periods of time for business and social reasons; in early April 1981, however, he left the United States abruptly, missing a scheduled business meeting on April 9, 1981. Tome was indicted in New York on August 7, 1984, charged with criminal violation of the securities laws. He has not been in the United States since 1981 and did not return to face the criminal charges. Although represented by counsel in this case, he refused to answer any interrogatories related to the transactions involved herein on the ground of the Fifth Amendment privilege against self-incrimination. 2. Finvest Geneva Although not technically a defendant in this action, Finvest Geneva is discussed here next, both for purposes of clarity, and because of Tome’s proprietary interest in and his use of Finvest Geneva in the matters involved herein. Finvest Geneva belongs to a group of related enterprises (the “Finvest Group”) that, through Tome’s design, were represented to potential clients as engaging in securities and commodities brokeraging, in trading and underwriting, Eurobond transactions, currency management, portfolio management, as well as in investment banking. Finvest Geneva itself was founded by Tome in 1979; Tome is its majority shareholder and two banks, Banque Privee and Compagnie de Banque et D’lnvestissement (“CBI”), are minority shareholders. Fin-vest Geneva’s clients comprise Swiss banks, persons with accounts in Swiss banks, and depositors of Swiss banks. Fin-vest Geneva managed portfolios for approximately 25-30 clients. Finvest Geneva was run from day to day by Tome, and when he was not there, by either of two other employees, Mr. Del Pozzo or Mr. Bulletti. Finvest Geneva had discretionary author ity over at least some of its clients’ accounts. The only persons exercising discretion over clients’ accounts, however, were Tome and, to a lesser extent, Del Pozzo and Bulletti. Thus, without the client’s advance knowledge, Tome would often buy and sell stock and/or options for a particular clients’ account. 3. Lombardfin S.p.A. Lombardfin S.p.A., a holding company for various subsidiaries and affiliates, engaged primarily in securities and currency brokeraging, was formed in 1974 by Paolo Mario Leati (“Leati”) and Dionisio G. Csopey (“Csopey”). Lombardfin S.p.A. and Finvest Geneva had a close working relationship because of Leati’s relationship with Tome. In fact, Lombardfin S.p.A.’s two principal foreign affiliates were renting their only office space from Finvest Geneva. Conversely, Tome often visited the Milan office of Lombardfin S.p.A.’s domestic subsidiary and used its facilities (e.g., telephone, telex machine, quotation machine) to conduct his business. In addition, Lombardfin Securities Underwriters, a Lombardfin S.p.A. 100% owned affiliate, executed trades in the Eurobond market on Finvest Geneva’s behalf because Finvest Geneva did not have the capacity to clear trades. Finvest Geneva had a securities trading account with Lombardfin Securities Underwriters, Ltd., which was opened on or about September 28, 1979. 4. Leati and Csopey Leati is an Italian national residing in Italy. In 1974, he and Csopey left their employment at Merrill Lynch, Pierce, Fenner & Smith, and formed Lombardfin S.p.A., as a joint stock company. In 1980-81, Leati was the majority shareholder (60-75%) in Lombardfin S.p.A. Csopey (12.5%) and Fiduciaria di Investimenti, a company, were the minority shareholders. Csopey was not named as a defendant in this action. Leati was the decision-maker for Lombardfin S.p.A. and its subsidiaries. He had discretion over accounts of many Lombard-fin S.p.A. clients and thus could, and often did, trade shares and/or options for a client’s account without that client’s advance knowledge or specific approval. 5. BSI Banca Della Svizzera Italiana (“BSI”) is a Swiss banking institution with principal offices in Lugano, Switzerland. It maintains securities trading accounts for customers. It acted for Tome’s interests and the accounts of the so-called Panamanian defendants, i.e., NICO, TFCO, and Finvest Panama, discussed next. 6. NICO To acquire the St. Joe securities he purchased directly on March 10, 1981, Tome used the brokerage trading accounts maintained at BSI for three Panamanian entities in which Tome had a beneficial interest, namely NICO, TFCO, and Finvest Panama. The first of these BSI accounts, Nayarit Investments, S.A. (“NICO”), is a Panamanian company which was formed on or about May 81, 1978. NICO’s principal line of business is the management and administration of assets deposited in bank accounts. Tome provided NICO with investment advisory and management services, for which no fees were paid to Tome. Tome was a beneficial owner of and held discretionary authority and a power of attorney over the NICO account. 7. TFCO The second of these trading accounts at BSI, Trasatlantic Financial Co., S.A. (“TFCO”), is a Panamanian company which was formed on or about March 25, 1980. TFCO’s principal line of business is the management and administration of assets deposited in bank accounts. Here again, Tome provided TFCO with investment and advisory services, without fee. Tome was a beneficial owner of the TFCO account and held discretionary power over it. 8. Finvest Panama The third of the trading accounts at BSI, Finvest Underwriters and Dealers Corp. (“Finvest Panama”), is a Panamanian corporation that was formed on or about June 26, 1979. Tome has been a beneficial owner of the Finvest Panama account with BSI and has had discretionary power over it. See supra note 10. As noted previously, see supra note 5, Finvest Panama is a wholly owned subsidiary of Infinvest Holdings, N.V. (i.e., the Finvest Group), and thus is directly related to Finvest Geneva, and thus to Tome. B. The Confidential Relationship At the base of this suit, we find a personal acquaintance that flowered and bloomed into an intimate friendship and a professional association in which trust and confidence were reposed in Tome, of which he callously took shoddy and unlawful advantage. Edgar M. Bronfman (“Bronfman”) is the Chairman of the Board and Chief Executive Officer of Joseph E. Seagram & Co. (“Seagram”), an Indiana corporation, and of its parent corporation, Seagram Company Ltd., a Canadian corporation. Bronfman met Tome in July 1980 when they flew together, as part of a group of fourteen people, on the Seagram Company airplane to Cheyenne, Wyoming to attend a rodeo. Bronfman’s wife had met Tome and his wife earlier that month. The Tomes promptly ingratiated themselves, resulting in an invitation to accompany the Bronfmans on the trip to help Mrs. Bronfman celebrate her birthday. Using his opportunity on the airplane, Tome turned to financial matters and discussed currencies with Bronfman. Using a reprint of an article written about him that he happened to have handy, Tome showed Bronfman his oft-repeated “insight” that any American corporation keeping all its accounts in U.S. dollars is thereby “going short” on other currencies. Within weeks of this enticing initial discussion, Bronfman introduced Tome to Harold Fieldsteel, Seagram’s chief financial officer. In a memorandum to Fieldsteel, dated August 5, 1980, immediately prior to a meeting between Tome and Seagram’s officers on the topic of Seagram’s currency position, Bronfman stated that Tome’s “record warrants our taking a serious look at his firm’s [i.e., Finvest Geneva’s] capabilities,” and that Bronfman was “not at all interested in any defensive attitude on [Seagram’s] part.” After the initial associations, Tome moved in on the Bronfmans and intensified the social relationship and his business approach. In October 1980, through Tome’s efforts, Finvest Geneva obtained as a major client Seagram with which it signed two agreements. On October 2, 1980, Tome, acting for Finvest Geneva, signed a “Foreign Exchange Advisory Agreement” with Seagram under which, in exchange for $100,-000 annually (later reduced to $50,000), Fin-vest Geneva agreed to provide Seagram with information and advice regarding world currencies and to form for it a foreign exchange advisory committee, the members of which were to be selected by Finvest Geneva with Seagram’s approval. On October 8, 1980, Tome, acting for Fin-vest Geneva, entered into an “Investment Management Agreement” with Seagram under which Finvest Geneva was given discretion to invest ten million dollars of Seagram’s money in various currencies, bonds and notes, and to exchange it from one currency to another. As a management fee, Finvest Geneva would receive one-eighth of 1%, per quarter, of the average amount of funds held in the Seagram account. Although not memorialized as a “formal” relationship, but clearly indicated by subsequent conduct, Bronfman, in his own words, “consider[ed Tome] sort of a European consultant to Seagram generally.” It was in the context of the actual relationship that Bronfman conveyed to Tome a stream of material non-public information concerning Seagram’s acquisition plans. Tome seized and actively solicited and nurtured this confidentiality, frequently probing into the internal reasons for Seagram’s actions, asking Bronfman “why?” Bronfman, on the other hand, states that he sought Tome’s insight into “how the European investment community would look at Seagram if [it] made such an acquisition.” Unquestionably, Tome was Bronfman’s friend and advisor, had formal contractual relationships with Seagram, through Finvest Geneva, and had vast experience in the securities industry; clearly, Tome was looked upon and treated by Bronfman as an insider of Seagram, as he had become. In his personal finances as well, Bronfman trusted and confided in Tome. Bronfman opened a personal account with Finvest Geneva for trading in commodity futures and currencies; he gave Tome a power of attorney and discretion over his personal account. Bronfman consulted with Tome “as an advisor [for] general business purposes.” This advisory function led to a “joint venture” between Bronfman and Tome, on behalf of NICO, as investors in the Broadway musical “Sophisticated Ladies.” In fact, Bronfman even replaced with his own money a $5,000 bounced check that Tome issued to the “Sophisticated Ladies” partnership on behalf of NICO. On another occasion, Tome suggested a “joint venture” to Bronfman whereby they would buy a block of stock in the Bache securities firm. Underlying and encouraging these confidential and business relationships, both Seagram-related and personal, between Bronfman and Tome were a pervasive series of social contacts. After initially meeting Tome on the plane trip for Bronfman’s wife’s birthday, Bronfman saw Tome regularly, approximately a dozen times, until April 1981 and exchanged telephone calls from time to time. Given the brief period of time they had known each other, Bronfman’s and Tome’s close social contacts were extensive and significant, giving Tome the access to Bronfman and thus to Seagram that he promoted. In November 1980, Bronfman, his wife, and another couple spent a weekend with Tome in Mageve, France at Tome’s ski lodge. On that same trip, Bronfman and his wife were personal guests at Tome’s house in Geneva, Switzerland, at a dinner party. In December 1980, Tome visited Bronfman and his wife during hunting season at their home in Charlottesville, Virginia. Bronfman and his wife spent the Christmas and New Year’s holidays in 1980-81 with Tome and his wife on a boat off Mexico. C. Seagram’s Acquisition Plans In August 1980, just after Bronfman met Tome, Seagram sold its interest in Texas Pacific Oil Company for $2.3 billion dollars. With this tremendous cash reserve, Seagram began looking at companies for purposes of finding an acquisition candidate. Seagram set up an acquisition committee, lined up a $3 billion dollar line of credit (that was available after November 1980), and hired Arthur D. Little & Company to do a macro study of how the world would change in the next twenty to thirty years, and thus where the best business opportunities lay. Bronfman was “fascinated” with coal as the primary source of energy after oil in the next 20-30 years and began to look at companies that had coal assets, particularly Santa Fe, Amax, St. Joe, and Union Pacific. In late 1980, Tome requested that Seagram provide him with a general briefing on its policies, operations, and financials, and he informed Seagram’s officers that he was interested in discussing with them Seagram’s use of the proceeds it had obtained from the Texas Pacific Oil sale. The data was provided to him, and Bronfman spoke with Tome as a consultant to Seagram about its acquisition and hostile tender offer plans. Sometime during the Fall of 1980, Seagram considered purchasing up to twenty percent of the outstanding shares of Texaco. Bronfman testified that Seagram “proceeded and got pretty close to actually making a tender” for Texaco. Around December 10, 1980, Bronfman decided that Seagram would not proceed with the Texaco tender. Immediately after deciding not to proceed with the Texaco stock purchase, Bronfman (and his investment bankers and acquisition committee) “started to focus on Santa Fe Industries.” In mid-December, while Tome visited Bronfman at his house in Charlottesville, Virginia during hunting season, Bronfman discussed Seagram’s acquisition plans with Tome in an attempt to determine “how the European investment community would look at Seagram if [it] made such an acquisition”: And he [Tome] asked, you know, had we gotten any closer to making any decision as to what we [Seagram] were going to do [about an acquisition] and I [Bronfman] said, yes I think we are looking very hard at Santa Fe. And we discussed it in general. He wanted to know why. I told him about the kind of asset play that it represented, (emphasis added). Tome probed further, asking Bronfman “when do you think?” (emphasis added). Bronfman told him that it might take another couple of months, and that the investment banking firms of Goldman, Sachs, and Lazard Freres were advising Seagram on the matter. Tome and Bronfman “didn’t just discuss Santa Fe, but companies like Santa Fe.” The coal resource companies that Bronfman had on his short list at the time were Santa Fe, Amax, and St. Joe. During this mid-December conversation, Bronfman did not consider it necessary to caution Tome that the information Bronfman was giving him was confidential because: I [Bronfman] didn’t think it was necessary----[because of Tome’s] 20 years in this business. He ought to know the rules. I assume he does know the rules____ [The rules are] [t]hat basically [what I told him] was inside information[;] ... [y]es[, materially non-public information]. At a Board meeting of Seagram’s parent corporation, held by telephone conference call on January 13, 1981, the Board authorized Seagram to invest up to $150 million dollars in four companies, the identities of which were not revealed even to the Board members at that time, in connection with Seagram’s possible interest in a candidate for acquisition. Seagram then immediately began purchasing fifteen million dollars worth of stock in each of the following companies: Santa Fe, Amax, St. Joe, and Kimberly Clark. On January 28, 1981, Seagram determined that it would not proceed with the potential acquisition of Santa Fe. Bronfman conveyed this information to Tome by February 6 at the latest. That decision precipitated a sale of Santa Fe stock and options by Finvest Geneva. The decision not to pursue Santa Fe left only Amax and St. Joe as Seagram’s potential takeover candidates. Tome was told of this whittling down of Seagram’s possible targets. Shortly thereafter, in early February, Amax was dropped by Seagram as a potential acquisition candidate. At a lunch that took place sometime on or before February 6, 1981, a partner of Lazard Freres, on behalf of Seagram, approached the Chairman of Standard Oil of California (“So-Cal”), which owned 20% of Amax’s stock, to ask if SoCal would be willing to sell its interest in Amax. After the Chairman of SoCal told him no, Seagram abandoned any idea of making an acquisition of Amax. According to Bronfman, “[ajlmost by a process of elimination, that left St. Joe.” (emphasis added). Bronfman disclaimed a “clear” recollection of whether he told Tome of Seagram’s discontinued interest in Amax: “I’m sorry, it’s fuzzy.” Of the four possible targets in which Seagram had made an initial and token investment of fifteen million dollars, only St. Joe remained as a potential acquisition candidate for Seagram. Bronfman asked Lazard Freres to find out as much information as possible about St. Joe and to come up with an evaluation. By February 25,1981, Bronfman had decided that Seagram would go ahead with a tender offer for the acquisition of St. Joe. One small diversion developed, but only momentarily. At the suggestion of an investment banker, to canvass the possibility of a “joint venture” arrangement with Santa Fe, Bronfman met for lunch on February 26 in Chicago with the Chairman and Chief Executive Officer of Santa Fe, John Reed. That meeting, however, was unsuccessful. Seagram tried to keep its interest in St. Joe secret from the marketplace. The market activity in St. Joe securities from January through early March 1981 indicates that Seagram’s efforts were largely successful; the value and price for St. Joe securities remained relatively flat. Indeed, Salomon Brothers & Co., a highly knowledgeable New York broker-dealer, executed sales of a vast block of up to one million St. Joe shares on behalf of an institutional client during the two weeks prior to, and including March 9, 1981, when the price range was $25 to $30 per share. Had there been any indication abroad that a hostile tender bid to take over St. Joe was expected by the market, Salomon Brothers surely would have advised their client to hold, rather than sell, such a large position. For several months prior to early March, the average daily volume of trading in St. Joe options on the Philadelphia Exchange had been only about 254 options. By Thursday, March 5, 1981, there was no trading in the March 1981 options of St. Joe which were due to expire that month. The average daily volume of trading in St. Joe common stock on the New York Stock Exchange was approximately 50,000 shares. None of this was indicative to any market follower of an impending hostile tender offer. D. March 9, 1981 And Following On March 9, Bronfman was in Hilton Head, South Carolina. He was scheduled to leave there by private jet at 3:00 p.m. He accelerated his departure, however, and instead left Hilton Head at 1:00 p.m. to attend a meeting specially called for later in the afternoon in New York, at 5:30 p.m., with several Seagram executives, its investment bankers, and outside counsel, to discuss a St. Joe tender. His bankers were concerned with insuring secrecy of the tender plans afoot by taking early action. Upon his return to his office in New York, before the 5:30 p.m. meeting, Bronfman received a telephone call from Tome who was also in New York (since Sunday, March 8) at the time. The reason given by Tome for the telephone call was to invite Bronfman to dinner for the following evening, March 10. Bronfman declined Tome’s dinner invitation on the grounds that he “was going to be in Montreal for a directors’ meeting.” According to Bronfman, Tome then asked Bronfman, “[a]re you having a [Seagram] Board meeting in Montreal?” Armed with his prior knowledge that St. Joe was Seagram’s only remaining, viable takeover possibility and with the information he had just obtained from Bronfman in their March 9 phone conversation indicating, from the background of a search for a target, that some official action on corporate matters was imminent, and that Bronfman was on his way to a Board meeting, all signals of important business at hand, Tome decided to concentrate in one day frenzied buying of an enormous quantity of call options on St. Joe stock and of the stock itself; he also tipped others to do likewise. The circumstances were such that Tome reasonably inferred that a vote on a tender proposal was imminent. Tome’s immediate conduct confirmed that he was not merely speculating on what was afoot; the extraordinary scope of his financial activities on the next morning was beyond any notion of rational, normal trading. The facts and circumstances lead to the ineluctable inference, which the Court draws, that Tome had obtained material non-public information in confidence from Seagram that it intended to make a tender offer for St. Joe. Beginning 8:55 a.m. on March 10, Tome, from New York, feverishly placed overseas orders for St. Joe call options to be executed on the Philadelphia Exchange for the accounts of NICO, TFCO, and Finvest Panama. In addition, by 12:35 p.m., Tome had urged others, i.e., clients and business associates, through overseas calls to Europe on at least fourteen separate occasions, to purchase St. Joe securities on American Exchanges. Before the market opened on March 10, Tome called BSI three times, at 9:13 a.m., 9:26 a.m., and 9:51 a.m., speaking for 4 minutes, 11 minutes, and 3 minutes respectively. He placed the following orders for options to purchase St. Joe stock on behalf of NICO, TFCO, and Finvest Panama through their trading accounts at BSI, spurring on the BSI broker “to rapidly pass the order”: Limit Per Underlying Account Quantity Series St. Joe Share NICO 50 March $25 $3.00 200 March $30 .75 50 June $25 5.00 50 June $30 2.50 Account Quantity Series Limit Per Underlying St. Joe Share 24 TFCO 50 March $25 $3.00 200 March $30 .75 50 June $25 5.00 50 June $30 2.50 Finvest Panama 100 March $25 3.00 400 March $30 .75 100 June $25 5.00 100 June $30 2.50 Tome called BSI three additional times that day, at 11:07 a.m., 11:51 a.m., and 12:32 p.m., speaking for 6 minutes, 1 minute, and 1 minute respectively. During these calls, approximately two hours after his initial calls to BSI, as the market price began to strengthen from the impact of a buying spree, Tome authorized an increase in the limits on the options previously ordered: Series Original Limit New Limit March $25 $3.00 $5.00 March $30 .75 2.00 June $25 5.00 7.00 June $30 2.50 4.00 At the same time, Tome furnished BSI with a k point discretion and reduced the order for March $30 call options from 800, total, to 400 contracts. On March 10, through its account at A.G. Becker, a U.S. securities brokerage company, BSI made the following St. Joe option purchases as a result of Tome’s order: Total Quantity (NICO, TFCO and Average Option Price Per Finvest Panama) Series Underlying St. Joe Share 200 March $25 $5.25 455 March $30 2.15 200 June $25 7.23 200 June $30 4.22 These 1,055 options gave the purchaser the right to purchase a total of 105,500 shares of St. Joe common stock for prices of either $25 or $30 per share, depending on the series purchased. v Also on March 10, Tome called Finvest Geneva twice, at 10:30 a.m. and at 10:54 a.m., speaking for 8 and 12 minutes respectively. On March 10, a Finvest Geneva representative, undoubtedly at Tome’s direction, placed an order through Baird-Patrick to buy 3,000 St. Joe shares of common stock on the New York Stock Exchange for Finvest Panama’s account at BSI. That order was executed at $30 per share and delivery was made to BSI against payment from BSI’s account at Irving Trust Company. Two thousand of the three thousand St. Joe shares of stock purchased for the account of Finvest Panama on March 10 were sold for approximately $94,000, netting an overnight profit of approximately $34,000. The remaining one thousand St. Joe shares subsequently were exchanged for 1,200 shares of Fluor Corp. The proceeds of the sale and the 1,200 shares are frozen in BSI’s account at Irving. In addition to Tome’s direct purchases, his telephone calls caused and resulted in tippee transactions on a grand scale. At 8:55 a.m. on March 10, Tome called his client Banque du Rhone, a Swiss bank in Geneva, Switzerland, speaking for 17 minutes. About three hours later, at 11:58 a.m., Banque du Rhone purchased 200 St. Joe shares and 50 St. Joe call options, at a total cost of $16,750. The subsequent sale of these securities resulted in proceeds of $114,756, with a net profit of $98,006. At 10:17 a.m. on March 10, Tome called Leati of Lombardfin S.p.A. in Milan, Italy, speaking for 5 minutes. Leati admits that in this telephone call Tome told Leati “I’d buy [St. Joe].” In view of the interrelationships, that expression was the equivalent of a virtual direction. Two minutes after hanging up on Tome’s phone message, at 10:24 a.m., Lea-ti, without first consulting his clients, began buying St. Joe securities on behalf of Lombardfin clients through their Lombard-fin accounts. Before this first trade, Lombardfin S.p.A. had never traded even one single share of St. Joe securities. By the end of the day, however, Leati had purchased more than 40,000 shares for the following accounts and the positions were shortly thereafter liquidated with the profit results indicated: Account Name First Trade Quantity Cost Liquidation Proceeds Credit Suisse Lausanne 10:24 a.m. 10,000 S ■$294,375 $481,250 Osiris Ltd. 10:26 a.m. 500 O 168,237 835,062 Crédito Svizzero Chiasso 11:45 a.m. 8.000 S 240,437 360,500 Unione di Bache Svizzere 1:00 p.m. 3.000 S 91,875 137.375 Banque Pictet 2:23 p.m. 3.000 S 90,375 138.375 Banque Privee 3:34 p.m. 5.000 S 150,625 235,812 Crédito Svizzera Lugano 3:59 p.m. 9,200 S 276,850 437,200 Lombardfin Securities No Time Stamp 2.000 S 60,750 93,875 TOTALS 40,200 S & 500 O $1,373,524 $2,719,449 Deducting total cost from total proceeds, these transactions resulted in a profit of $1,345,925 for these accounts. At 10:24 a.m. on March 10, about two minutes after getting off the phone with Leati at Lombardfin, Tome called Cramer, a Swiss bank in Geneva, Switzerland, and a Tome client, speaking for 5 minutes. Twelve minutes later, at 10:41 a.m., Cram-er began buying St. Joe securities. It purchased 100 St. Joe call options and 1,000 St. Joe shares, at a total cost of $50,012. The subsequent sale of these securities shortly thereafter resulted in proceeds of $183,500, with a net profit of $133,488. At 11:15 a.m. on March 10, Tome called Compagnie de Banque et d’Investissements (“CBI”), a Swiss bank in Geneva, Switzerland, a Tome client, and a partner in Tome’s Finvest organization, speaking for 1 minute. Less than two hours later, at 1:00 p.m., CBI ordered 150 St. Joe call options and 1,100 St. Joe shares, at a total cost of $64,837. The subsequent sale of these securities shortly after the purchases resulted in proceeds of $234,000, with a net profit of $169,000. As noted previously, on March 10, Tome called Finvest Geneva twice, once at 10:30 a.m., speaking for 8 minutes, and once at 10:54 a.m., speaking for 12 minutes. Shortly after each of these calls, two of Tome’s clients, Banque Gutzwiller (“Gutzwiller”) and Trade Development Bank (“TDB”) began buying St. Joe securities. At 10:40 a.m. on March 10, Gutzwiller ordered 2,000 St. Joe shares, at a total cost of $59,250. The subsequent sale of these securities resulted in proceeds of $90,737, with a net profit of $31,487. At 12:02 p.m. on March 10, TDB ordered 13,000 St. Joe shares, at a total cost of $390,750. At 6:39 a.m. on March 11, Tome called TDB, speaking for 10 minutes. Subsequently, beginning at 2:55 p.m. on March 11, TDB sold its St. Joe shares for proceeds of $597,675, with a net profit of $206,925. What method Tome used to convey his inside information to Gutwiller and to TDB cannot be stated with certainty. Under the circumstances and facts of this case, however, it is reasonably inferrable that Tome did convey his inside information to them. These two banks were clients that Tome brought over to Baird-Patrick, with Tome listed as representative for the accounts. Both banks began trading in St. Joe securities at exactly the same time as the banks Tome had called directly. Both banks began trading very shortly after Tome’s calls to Finvest Geneva. Gutzwiller placed its order two minutes after Tome had completed his first call to Finvest Geneva; TDB placed its order less than one half hour after Tome completed his second call to Finvest Geneva. The evidence shows that Tome called many of his other clients directly on March 10 to tell them to buy St. Joe securities. Tome called TDB directly at 6:39 a.m. on March 11, just hours before the Seagram tender offer was publicly announced. Unquestionably, Tome was in direct contact with at least TDB during this crucial interval. Despite the uncertainty over how the inside information was conveyed by Tome to Gutzwiller and to TDB, it is reasonably inferrable that it was conveyed. Moreover, this uncertainty over how is largely due to Tome’s refusal to testify in this action, by invoking his Fifth Amendment privilege against self-incrimination. While Tome has a right to remain silent and thereby to not inculpate himself and to avoid confrontation therewith in the criminal action, he is not entitled to profit by his silence in this civil action. Therefore, to the extent necessary, this Court is justified in drawing an adverse inference from Tome’s assertion of his Fifth Amendment privilege in this civil action. This Court finds that Tome conveyed the inside information that he possessed to Gutzwiller and to TDB, and that they subsequently traded and profited personally on that information. Consequently, Tome is liable to account for their profits obtained from these transactions. When aggregated, the activities of Tome, as recited above, directly and indirectly, accounted for a significant portion of the volume of St. Joe option transactions executed on the Philadelphia Exchange on March 10: Percentage of Total Calls Series Total St. Joe Calls Purchased On March 10 Total St. Joe Calls Purchased By Defendants March 10 On St. Joe Represented By Defendants’ Purchases March $25 285 200 70% March $30 2334 705 30% June $25 1334 200 15% June $30 740 350 74% June $35 463 50 11% TOTALS 5,626 1,855 33% In addition to options on 185,500 shares of St. Joe common stock, Tome and his satellite purchasers accounted for the purchase of at least 60,500 St. Joe shares, 10.67% of the total volume in St. Joe stock on the New York Stock Exchange on March 10. On March 10, 1981, at 7:00 p.m., an unscheduled special meeting of the Seagram parent company Board of Directors was held in Montreal, Canada. This special meeting was called on short telephone notice according to the Board minutes. Bronfman, in common with the other directors, unaware of Tome’s feverish trading activity earlier in the day, attended this special meeting. Bronfman’s deposition testimony was content to characterize this special meeting on March 10 as merely an “acceleration” of the “regularly scheduled” Board meeting, which was accelerated from March 11 in response to suggestions of the investment bankers concerned with maintaining confidentiality of the ongoing preparation of the tender offer to be voted on by the directors as well as probably dismayed at the market activity in the St. Joe stock on March 10. Bronfman’s uncertain recollection was that the decision to accelerate was made at lunch on March 10, but there was no luncheon — if the recollection were true, thirteen of the fifteen Seagram parent company Directors, including eight of the ten outside Directors, and the substantial coterie of investment bankers, consultants, engineers, and lawyers who showed up at the meeting, came to Montreal a day earlier than the fixed meeting date on at most six or seven hours notice before the meeting began. There was no testimony that pinpointed when he first considered accelerating the meeting, i.e., whether accelerating the Board meeting was considered before or after he spoke to Tome on March 9 and turned down a dinner engagement for the evening of the special meeting. On March 10, 1981, the parent company authorized Seagram to make its tender offer for the shares of St. Joe. The defendants presented a witness with a view to explaining the extraordinary 50% surge of the market price on March 10th 1981. Mr. Marc Cohen, an analyst in mining industries for the brokerage firm of Kidder, Peabody held to the dubious belief that events over many prior months caused the explosion. When questioned about what material non-public information might catalyze what occurred, he conceded that an awareness that a special meeting of the Seagram Board was about to take place would have been material, non-public information in light of the contemporaneous facts and circumstances and inferentially might account for what had happened. On March 11, before Seagram’s announcement of the St. Joe tender offer, Tome called BSI twice, at 6:23 a.m. and 6:25 a.m., speaking for 1 and 2 minutes respectively. At 8:00 a.m., BSI called Tome back. During this conversation, Tome instructed BSI to place an order for an additional 2,055 St. Joe call options without price limit at the market. While BSI was attempting to place this order, Tome anxiously stayed on an open telephone line to BSI for confirmation. BSI informed Tome that 2,000 call options was the floor trading limit on the Exchange. Tome then reduced his call option purchase order to 945 call options. Again that morning, before the Seagram tender offer for St. Joe was publicly announced, Tome again placed overseas calls to two European clients. At 6:04 a.m. he called CBI, speaking for 1 minute. At 6:39 a.m. Tome called TDB, speaking for 10 minutes. At 9:22 a.m. on March 11, the Seagram tender offer for St. Joe was publicly announced. The announcement resulted in a delay in the opening of trading for St. Joe securities. In consequence, the large call option orders Tome placed on the morning of March 11 were never executed on the Exchange. At 10:30 a.m. on March 11, a so-called “regularly scheduled” Board meeting of the Seagram parent company was held in Montreal pursuant to a notice of meeting that had been forwarded to all Directors on February 23, 1981. After the meeting on March 11, Bronfman returned to New York from Montreal. Through arrangement prior to March 9, 1981, between their wives, Bronfman and Tome met and went in the evening of March 11th to see the play they had invested in, “Sophisticated Ladies.” That evening, Bronfman discussed Seagram’s tender offer for St. Joe with Tome. Bronfman discussed his telephone conversation with the St. Joe management, whom he had called just prior to Seagram’s public announcement of the St. Joe tender to advise them of the impending offer. Bronfman discussed with Tome the price Seagram had tendered and speculated to Tome on Seagram’s chance of success. In addition, Bronfman disclosed the timetable for the St. Joe tender and the behind-the-scenes arrangements for Board meeting schedule changes. Despite Bronfman’s confidences and discussions with Tome on the topic of the St. Joe tender offer that evening, Tome was eloquently silent and mentioned absolutely nothing to Bronfman about Tome’s massive orders, trades, telephone calls overseas, and exhortations to others in regard to St. Joe securities. Beginning on March 12, 1981, Tome instructed BSI immediately to liquidate and cash in the St. Joe option positions acquired on March 10. Specifically, at about 8:24 a.m., Tome called BSI, speaking for 9 minutes, and instructed it to sell all March options he had purchased for the accounts of NICO, TFCO, and Finvest Panama. At 8:43 a.m., Tome called Banque du Rhone, speaking for 6 minutes. Shortly thereafter, Banque du Rhone cashed in its purchases. On March 12, Bronfman gave a dinner party in Tome’s honor for twenty people at Bronfman’s house. Once again, Bronfman talked to Tome about the Seagram tender offer for St. Joe. Again, Tome maintained total secrecy and made no mention to Bronfman about his activities in St. Joe securities in the prior two days. On March 13, at 8:47 a.m., Tome called BSI, speaking for 11 minutes, and instructed it to sell the 50 June $25 options and 50 June $30 options he had acquired on March 10. On that same day, news of the SEC inquiry into possible insider trading on the Seagram bid for St. Joe was publicly disseminated. Tome decided it was time to leave New York. Although he had reservations through March 18 at his hotel in New York, Tome cut short his visit to the United States and returned on March 14 to Switzerland. On March 15, 1981, Tome, in Geneva, called BSI and requested that they rearrange the option purchases to make it appear that Finvest Panama had not purchased any of the St. Joe options. He suggested that Finvest Panama’s purchases of March options be reallocated to NICO and of June options be reallocated to TFCO. The ostensible reason for this falsification and switch was to “secure greater confidentiality within his organization.” After a series of meetings, BSI vehemently declined to change its records of the transactions as they were effected. BSI reported to Tome that its account entries were “unalterable” and Tome’s requests to change the records were rejected. The SEC filed this suit on March 27, 1981. The SEC initially had difficulty in identifying so shortly after the trading activity the foreign nationals who made the trades, and the defendants were initially identified by category, not by name. As it became clear exactly who had engineered the St. Joe trades, their names were added by amendment to the title of the lawsuit. BSI, the Swiss bank, and Irving Trust Company of New York, were the only defendants named in this suit on March 27, 1981. Proceeds of the illegal trading, as later described herein, were in the possession of Irving Trust, and under the control of BSI. The accounts for which trades were made through the Lugano branch of BSI were identified only as those of “Unknown Purchasers.” As a result of the liquidation of the options transactions through BSI, approximately $1,825,000 (less commissions) was credited to BSI’s account at Irving Trust Company, at the direction and on behalf of Tome, NICO, TFCO, and Finvest Panama. Of this sum, approximately $1,442,000 represented profit. Despite the fact that Tome’s name had not been mentioned in any public documents as being implicated in insider trading, on Monday, March 30,1981, after hearing of this suit, Bronfman immediately telephoned Tome. Bronfman called Tome because he was concerned that: perhaps he [Tome] had done something. I wanted to make doubly sure he hadn’t. Because the only person I knew in Switzerland that would have any knowledge one way or another of anything that was going on, at least for me, was Mr. Tome. Bronfman was unable to reach Tome. From Zurich, Switzerland, Tome returned the call by telephoning Bronfman at his apartment that same night at approximately 7:20 p.m. Tome said that he was sorry that Bronfman had called him earlier. He then told Bronfman the first of several boldfaced lies: You know, I’ve been in this business [ie., securities] for 20 years and I know what to do and what not to do. And clearly I certainly didn’t do anything____ But, it’s a little more complicated than that and I will see you in New York next week. A week later, on Monday, April 6, at approximately 5:30 p.m., Tome dropped by Bronfman’s apartment in New York unexpectedly. Tome lied again and told Bronfman that, in his absence from Geneva, “one of his [Tome’s] people” had put through an order for 3,000 shares of St. Joe stock but that “he [Tome] hadn’t personally placed the order.” Bronfman asked Tome, point blank, “Were those shares in any way beneficially owned by you or members of your family?” Tome responded unequivocally, “No.” Bronfman and Tome met again the next morning, April 7, at 10:00 a.m. at Bronfman’s office. Bronfman’s attorney was present at that meeting. This time Tome had an attorney present, who arrived at approximately 10:20 a.m. Bronfman and his attorney made it clear to Tome and his attorney that any conversations they would have that day would be reported to the SEC. At this meeting, Tome “reiterated that none of [the 3,000 shares of St. Joe stock purchased] had gone into his accounts” and that neither he, his wife, his children, nor any members of his family had any beneficial interest in St. Joe stock. He again said that “his clerk” had heard rumors about St. Joe and had decided, on his own, to buy 3,000 shares and “put them in various accounts.” In addition, Tome asserted flatly that he had “absolutely nothing to do” with the St. Joe option purchases on March 10. In fact, in response to a question from Bronfman’s lawyer concerning whether Tome had any reason to believe that the beneficial holder of the 3,000 St. Joe shares was in any way related to the beneficial holders of the St. Joe options involved in this suit, Tome said that “[n]o, he had no reason to think so.” Tome disclaimed any direct or indirect beneficial interest in any option trades. He termed it a “coincidence” that on March 10th, in addition to the 3,000 shares, defendant BSI also purchased 1,055 St. Joe call options on 105,500 shares of stock for prices of either $25, $30, or $35 per share. The canards were ultimately exploded. After the SEC’s diligent investigation uncovered irrefutable evidence of Tome’s involvement in the St. Joe option and stock trades, Tome’s counsel conceded on the record that Tome had a beneficial interest in St. Joe stock purchases. At trial, Tome’s counsel and the Court engaged in the following colloquy: Counsel: ... Tome was responsible for purchasing stock on March 10. That’s not denied. There was an announcement— The Court: You mean it’s not any longer denied? Counsel: It is not denied, your Honor. The Court: He falsified about that initially, didn’t he? Counsel: I believe that the testimony of Bronfman indicates that he [Tome] was not candid about that fact, [J]udge. The Court: That’s the understatement of the year. On April 8, 1981, Tome called Bronfman from Geneva, Switzerland, and in a belligerent tone accused Bronfman of getting him into this “mess.” Tome claimed that Bronfman’s lawyers were going to protect Bronfman and leave Tome “out in the cold.” When Tome continued to talk to Bronfman in this belligerent tone, Bronfman terminated the call. Fifteen minutes later, Tome called him back, this time very distraught. Tome was concerned with the possibility of going to jail because if he did “his career would be finished.” Sometime thereafter, Bronfman, strangely enough, asked his wife to call Tome’s wife to tell her “Don’t worry. We love you____ The reason Edgar’s [Bronfman] not calling you is because he’s being advised not to. But he still loves you.” E. Leati’s Disclosures Leati himself admits that in a telephone conversation on March 10, 1981, Tome advised him to purchase St. Joe securities. Leati states that he got the “hint” to buy St. Joe from Tome when Tome said “I’d buy [St. Joe].” Leati claims, however, that he never heard of Seagram, as a company, until the official announcement of the tender offer nor did he know of Tome’s (and Finvest Geneva’s) relationship with Seagram. He claims that after Tome gave him the “hint” on St. Joe, he bought the stock not because of any knowledge of an imminent Seagram tender offer but because “the volume [of trading in St. Joe stock] was increasing in the days immediately prior to the transaction.” In essence, Leati would have this Court believe that although he received the “hint” to buy St. Joe from Tome, Leati engaged in some sophisticated, independent market research and analysis after speaking to Tome and before making the actual decision to purchase St. Joe securities for the accounts of Lombardfin S.p.A.’s clients. That notion is unworthy of belief. In fact, the volume was not steadily increasing in the week and days immediately prior to Lombardfin S.p.A.’s March 10 purchases. More significantly, however, Leati placed the first order for St. Joe stock, 10,000 shares, approximately two minutes after finishing his telephone conversation with Tome. Leati could not have had time to investigate the St. Joe stock before trading. In this regard, it is highly significant that before March 10, 1981, Lombardfin S.p.A. had never traded even one single share of St. Joe stock. On March 10, 1981, however, it traded more than 40,000. Not surprisingly, Csopey, Leati’s former partner at Lombardfin S.p.A., tells a very different — and more believable — version of what caused Lombardfin S.p.A. to trade in St. Joe securities on March 10. In his testimony, Leati was evasive and belligerent, often berating the attorney for asking a particular question. In sharp contrast, Csopey’s testimony was careful and credible. Csopey was in charge of the Rome office of Lombardfin S.p.A.’s Italian domestic subsidiary — Leati was in charge of the Milan office — and thus was usually in Rome. On March 10, 1981, however, Csopey was in Milan to visit customers and to attend a Board meeting the next day. While in the Milan office on March 10, Csopey and his then partner, Leati, had a private conversation in Leati’s office. Lea-ti told Csopey that Tome had called Leati from New York. “Leati [ ] had been advised by Tome ... [t]hat Seagrams [sic] would make, in the next few days, make a tender offer for St. Joe Minerals.” Leati said that, in exchange for $200,000, Tome was passing this information to Lombard-fin S.p.A. for Lombardfin to take advantage of for itself and for its customers. This prospective payment to Tome was contingent upon there being a takeover and was to come not from Leati nor from Lombardfin S.p.A., but from those individuals profiting from Tome’s information. Leati discussed the reliability of Tome’s information with Csopey, mentioned that Tome was a consultant to Seagram, and stated that “since Tome claimed to have a close personal relationship to Seagrams [sic], that this [information] could well be true.” Leati told Csopey that he had already bought some stock and options in St. Joe that day while Csopey was not in the office. Leati said that he had not spoken to any customers before placing trades on their behalf in St. Joe on March 10. Indeed, Csopey knew from his own experience that mobilizing so many trades in so short a period of time necessitated Leati to be acting on his own discretion, without first checking with customers. At the end of this conversation, Leati, considering additional purchases of St. Joe securities, said to Csopey “Let’s give it a try.” In fact, Leati placed additional orders for St. Joe securities on March 11 before the New York Stock Exchange opened, but these orders could not be executed because the market opening in St. Joe was delayed by the Seagram tender offer announcement. The next day, the Board meeting of Lombardfin S.p.A., and its Italian subsidiary, was interrupted by news of the Seagram tender offer for St. Joe. The discussion at the meeting then turned to St. Joe, with comments ranging from an estimate of the stock’s opening price to regulatory consequences for the prior day’s trading. Leati explained to the Board members, who were not intimately familiar with the mechanics of New York Stock Exchange trading, what was going on. In discussing the regulatory consequences, Leati admitted that the firm had committed a securities violation by trading on inside information but apparently downplayed the risk of being caught by remarking that Lombardfin S.p.A. had accounted for only a “small fraction” of the previous day’s total trading volume. Csopey does not remember if, at that meeting, Tome was identified to the Board as the person providing the inside information. He was, at least, identified to them later. On March 11, 1981, Leati told Csopey that Tome and Leati had exchanged telephone calls and Tome had told him that “[t]he launch of the [Seagram] takeover bid had been anticipated [i.e., accelerated] due to market action.” Throughout 1981, after the SEC had instituted this lawsuit, Tome regularly visited Lombardfin’s office in Milan. When he was. in Milan, Csopey and Tome had discussions about this lawsuit in general, particularly how large the legal fees were for all people concerned. Subsequently, Leati told Csopey that Tome had pressed Leati for contributions to the legal fees and to a pool which would settle the case. In fact, when Lombardfin S.p.A. itself began running up substantial legal fees in connection with this case Leati told Csopey that Leati should have anticipated these legal expenses and “taken account” of them in the money given to Tome for providing the inside information. II. INSIDER TRADING The SEC brings this civil insider trading action, authorized by Section 21(d) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78u(d), seeking an injunction and other ancillary relief, including disgorgement of ill-gotten gains, against defendants based on defendants’ violations of the antifraud provisions of the securities laws and regulations. Subject-matter jurisdiction is based on Sections 21(e) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(e) and 78aa. For the reasons shown hereafter, the SEC is entitled to prevail. The federal securities laws do not contain an express definition of insider trading. Instead, liability for insider trading has grown out of the antifraud provisions of the securities laws and regulations, primarily Section 10(b) and Rule 10b-5. As the Supreme Court has made clear, however, “not every instance of financial unfairness constitutes fraudulent activity under § 10(b).” Chiarella v. United States, 445 U.S. 222, 232, 100 S.Ct. 1108, 1116-17, 63 L.Ed.2d 348 (1980). The gravamen of an insider trading violation under these provisions is breach of a fiduciary or similar duty of trust and confidence arising from some relationship. An individual trading on inside information in breach of such a duty, without prior disclosure, commits fraud within the meaning of Section 10(b) and Rule 10b-5. The term “insider trading” actually is a misnomer, only imperfectly describing the proscribed conduct, since liability under the securities laws can extend to those who are not insiders, as that term is commonly understood (e.g., directors and officers of the corporation, see Moss v. Morgan Stanley Inc., 719 F.2d 5, 10 & n. 8 (2d Cir.1983), cert. denied sub nom., Moss v. Newman, 465 U.S. 1025, 104 S.Ct. 1280, 79 L.Ed.2d 684) (1984)), if these “outsiders” either become “temporary insiders” of the corporation by legitimately being given access to confidential corporate information solely for corporate purposes, Dirks v. SEC, 463 U.S. 646, 655 n. 14, 103 S.Ct. 3255, 3262 n. 14, 77 L.Ed.2d 911 (1983), or become “tippees” by receiving inside information improperly. Id. at 660, 103 S.Ct. at 3264 (emphasis in original). Temporary insiders acquire independent fiduciary duties to the corporation and to its shareholders, and thus commit fraud within the meaning of Section 10(b) and Rule 10b-5 when they breach their fiduciary or similar duty of trust and confidence. Tippees, however, have no independent fiduciary or similar duty of trust and confidence to the corporation or to its shareholders; their liability for insider trading “is derivative from that of the insider’s duty.” Id. at 659, 103 S.Ct. at 3264. If there has been no breach by an insider (i.e., the “tipper”) in conveying the inside information to the tippee, there can be no derivative breach by the tippee. Id. at 662, 103 S.Ct. at 3265. Even if there has been a breach by the tipper of his fiduciary or similar duty of trust and confidence, the tippee only commits fraud within the meaning of Section ÍQ(b) and Rule 10b-5 if the tippee trades on that inside information when he “knows or should know” that the inside information was conveyed to him in breach of the tipper’s duty. Id. at 660, 103 S.Ct. at 3264. Tippers are jointly and severally liable for the profits obtained (or losses avoided) by their tippees. See Bateman Eichler, Hill Richards, Inc. v. Berner, — U.S.-, 105 S.Ct. 2622, 2630, 86 L.Ed.2d 215 (1985) (“A tippee trading on inside information will in many circumstances be guilty of fraud against individual shareholders, a violation for which the tipper shares responsibility.”) (emphasis added); Elkind v. Liggett & Myers, Inc, 635 F.2d 156, 169 (2d Cir.1980). Indeed, the Supreme Court has held that the tipper’s conduct, almost invariably,' is more culpable than that of the tippee. Bateman, 105 S.Ct. at 2630-31. Tipper liability is necessary so that a fiduciary does not attempt indirectly to do that which he may not do directly. Dirks, 463 U.S. at 659, 103 S.Ct. at 3264. Before tipper and tippee liability arises under Section 10(b) and Rule 10b-5, however, there first must be a breach of the insider’s fiduciary or similar duty of trust and confidence, satisfying the fraud element. “The test is whether the insider personally will benefit, directly or indirectly, from his disclosure.” Id. at 662, 103 S.Ct. at 3265. Focusing on objective criteria, the court must find “a pecuniary gain or a reputational benefit that will translate into future earnings.” Id. at 663, 103 S.Ct. at 3266. As examples of situations satisfying this breach requirement, the Supreme Court noted “a relationship between the insider and the recipient that suggests a quid pro quo from the latter or an intention to benefit the particular recipient” and “a gift of confidential information to a trading relative or friend.” Id. at 664, 103 S.Ct. at 3266 (emphasis in original). Determining whether the insider personally benefits from a disclosure is a question of fact. Id. One relationship giving rise to a duty sufficient to support liability under Section 10(b) and Rule 10b-5 is a fiduciary or similar relationship of trust and confidence between the shareholders of the company whose stock is being traded and the individual trading. This is the relationship the Supreme Court focused on in Chiarella and Dirks. Recently, however, in actions brought by governmental agencies, the lower federal courts have been extending liability under Section 10(b) and Rule 10b-5 to other relationships, under a “misappropriation” theory. The common-sense notion underlying the misappropriation theory is that one who misappropriates valuable information for his own benefit, in breach of a fiduciary or similar duty of trust and confidence, has surely committed fraud on the person or entity to whom that duty is owed. The prerequisite for liability under the misappropriation theory is misuse of nonpublic information in breach of a fiduciary or similar duty of trust and confidence to some person or entity, although that person or entity need not necessarily be a purchaser or a seller of securities. See Report of The Task Force On Regulation of Insider Trading (part 1): Regulation Under The Antifraud Provisions of The Securities Exchange Act of 193b, 41 Bus.Law. 223, 236 (Nov.1985) [hereinafter cited as ABA Report]. Thus, under the misappropriation theory, the scope of the duty required to ground liability is no different than the one outlined by the Supreme Court in Chiarella, and reiterated in Dirks; the person or entity to whom that duty is owed, however, for purposes of liabi