Securities and Exchange Commission v. First City Financial Corporation, Ltd.

Section 13(d) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78m(d), requires any person who has directly or indirectly obtained the beneficial ownership of more than 5 percent of any registered equity security to disclose within 10 days certain information to the issuer, the exchanges on which the security trades, and to the Securities and Exchange Commission ("SEC").1 The SEC charged appellants, First City Financial Corporation, Ltd. ("First City") and Marc Belzberg, with deliberately evading section 13(d) and its accompanying regulations in their attempted hostile takeover of Ashland Oil Company ("Ashland") by filing the required disclosure statement after the 10 day period. The district court concluded that appellants had violated the statute; it then enjoined them from further violations of section 13(d) and ordered them to disgorge all profits derived from the violation. See SEC v. First City Financial Corp., et al. 688 F.Supp. 705 (D.D.C.1988). We think that the district court's findings were not clearly erroneous and that the injunction and disgorgement orders were lawful and appropriate remedies for appellants' violations. We therefore affirm.

The SEC's case is based on its contention that on March 4, 1986 Marc Belzberg, a vice-president of First City, telephoned Alan ("Ace") Greenberg, the Chief Executive Officer of Bear Stearns, a large Wall Street brokerage firm, and asked Greenberg to buy substantial shares of Ashland for First City's account. Appellants claim that Greenberg "misunderstood" Belzberg: the latter intended only to recommend that Bear Stearns buy Ashland for its own account.

First City is a diversified Canadian corporation founded and controlled by the Belzberg family and engaged in, among other things, investing in the publicly-traded securities of United States corporations. Samuel Belzberg, Marc's father, is the Chairman and Chief Executive Officer of the company. Samuel Belzberg and his two brothers own at least 70 percent of the stock of First City. Marc Belzberg managed the company's fifteen-person New York City subsidiary. The New York office apparently evaluated potential investments for the parent First City.

On February 3, 1986, a New York stockbroker, Alan D. Alan, wrote a letter to Samuel Belzberg describing Ashland as a "sensational business opportunity" and stating that "the circumstances and timing could hardly be better for the 'Sam Belzberg Effect.' " (emphasis in original). In a second letter sent several days later, Alan presented Samuel Belzberg with additional financial information on Ashland, including its break-up valuation. After Marc Belzberg received copies of this information, he instructed two financial analysts in the New York office to begin to study Ashland and its component divisions. Armed with their favorable preliminary analysis, on February 11 Marc and Samuel Belzberg purchased 61,000 shares of Ashland stock for First City using Goldman Sachs, another large Wall Street investment banking house. Throughout the month, First City also steadily acquired large blocks of Ashland stock through Katz-Goldring, Alan's smaller brokerage firm. By February 26, First City had accumulated more than 1.3 million shares, approximately 4.8 percent of Ashland's total outstanding stock. Around the same time, Marc Belzberg discontinued purchasing Ashland stock through Katz-Goldring and began acquiring shares through Greenberg at Bear Stearns. Greenberg had enjoyed a longstanding business relationship with First City and Samuel Belzberg. Additional purchases of approximately 53,000 shares of Ashland stock through Greenberg between February 26 and 28 pushed First City's holdings to 1.4 million shares, or just over 4.9 percent of all Ashland stock.

During this period, First City employed several commonly accepted measures to maintain the secrecy of its purchases, since public knowledge that First City was acquiring a large stake in Ashland would likely drive up the price of the stock. For instance, First City bought the Ashland stock through nominee accounts2 established at Katz-Goldring specifically for the Ashland purchases. Confirmations of the stock purchases were mailed under the nominee name to the home of Robi Blumenstein, an officer in First City's New York subsidiary.

On Friday, February 28, First City received a favorable report from Pace Consultants, a Texas consulting firm hired to assess Ashland's petroleum-related businesses. Pace valued these segments of Ashland at $726 million. The following Monday, on March 3, Pace revised its estimate upward to $844 million. The next day, on March 4, Marc Belzberg telephoned Greenberg and engaged him in a short conversation that would be the centerpiece of this litigation. At his deposition,3 Greenberg described the conversation in the following manner:

[Marc Belzberg] called me and said something to the effect that--something like, "It wouldn't be a bad idea if you bought Ashland Oil here," or something like that. And I took that to mean that we were going to do another put and call arrangement that we had done in the past.... I was absolutely under the impression I was buying at their risk and I was going to do a put and call.4

While Greenberg interpreted Marc Belzberg's call as an order to purchase Ashland stock on behalf of First City, Marc Belzberg later claimed that he intended only to recommend that Greenberg buy stock for himself, that is, for Bear Stearns, and that Greenberg apparently misunderstood Belzberg. Immediately after the phone call, Greenberg purchased 20,500 Ashland shares. If purchased for First City, those shares would have pushed First City's Ashland holdings above 5 percent and triggered the beginning of the 10 day filing period of section 13(d). In that event, First City would have been obliged to file a Schedule 13D disclosure statement on March 14 with the SEC.

Between March 4 and 14, Greenberg purchased an additional 330,700 shares of Ashland stock for First City costing more than $14 million. Greenberg called Marc Belzberg periodically during those ten days to discuss various securities, including Ashland. In these conversations, Greenberg reported to Marc Belzberg the increasing number of Ashland shares Greenberg had accumulated. According to Greenberg, Belzberg replied to these reports by saying, " 'Fine, keep going,' or something to that effect." Greenberg also characterized Belzberg's response as "grunt[ing]" approvingly. Belzberg did not squarely deny that testimony; he testified that he, Belzberg, said "uh-huh, I think it's cheap." Over the March 15-16 weekend, Marc Belzberg met with his father and uncles in Los Angeles to discuss Ashland. On Sunday, March 16, Samuel Belzberg decided that First City should continue to buy Ashland stock. Marc Belzberg then advised his father that Greenberg had accumulated a block of Ashland shares that "First City could acquire quickly." Samuel Belzberg later testified that he had no prior knowledge of the Greenberg purchases.5

Returning to New York the next morning, March 17, Marc Belzberg called Greenberg and arranged a written put and call agreement for the 330,700 shares Bear Stearns had accumulated. During that conversation, Marc Belzberg did not mention a price to Greenberg. Several days later, Marc Belzberg received the written agreement with a "strike price," or the price Bear Stearns was charging First City, of $43.96 per share. This price was well below the then market price of $45.37; thus, the total March 17 put and call price was almost $500,000 below market. Marc Belzberg apparently expressed no surprise that Bear Stearns was charging almost half a million dollars less than market value. He later testified that he believed that Bear Stearns was acting as a "Santa Claus" and that Greenberg was giving him "a bit of a break" to gain more business from First City in the future.

When Blumenstein, the officer responsible for ensuring First City's compliance with the federal securities laws, noticed the strike price, he immediately met with Marc Belzberg. Blumenstein recognized that the computation of the price reflected only the cost to Bear Stearns of acquiring the stock over the two week period before the written agreement (plus interest and commission), thus creating an inference that First City was the beneficial owner of the securities before March 17. After Blumenstein outlined the problem to Belzberg, the two men called Greenberg on a speakerphone. Belzberg later testified, "I informed Mr. Greenberg [during that conversation] that the letter [the written agreement] was incorrect, that I didn't care what the price of the stock was that he bought for himself, I didn't care what day he made the trades for himself, that I was buying stock from him as of today." Belzberg then testified that Greenberg said, "[Y]ou're right, the letter's wrong, I didn't read it before it went out, throw it out and I will send you a corrected copy." Greenberg, however, testified that Belzberg referred only to an error in the calculation of interest and not to the date on which First City acquired the stock. At the end of the conversation, Belzberg suggested he pay $44.00 per share, 4 cents per share higher than the original strike price but still $1.36, or a total of nearly $450,000, below the market price. At trial, Belzberg admitted to picking the $44 figure "out of the air" and that he "did not want the price [he] was paying to relate to [Greenberg's] cost." Between March 17 and 25, on Marc Belzberg's instructions, Greenberg bought another 890,100 Ashland shares on behalf of First City using several put and call agreements.

After these purchases, Samuel Belzberg sent a letter to Ashland's management, informing them of First City's holdings in their stock and proposing a friendly takeover of the company. Ashland rejected the offer, and on the morning of March 25 the company issued a press release disclosing that First City held between 8 and 9 percent of Ashland's stock. Almost immediately, the price of Ashland stock rose 10 percent to $52.25. The next day, on March 26, First City filed the Schedule 13D disclosure statement required by section 13(d). The statement indicated that First City had accumulated 9 percent of Ashland stock and intended to launch a tender offer for the remaining shares at $60 per share. The market price of Ashland stock then rose to $55, peaking at $55.75 per share the next day.

At Ashland's urging, the Kentucky legislature passed legislation hampering First City's ability to obtain financing for the tender offer. Soon thereafter, First City abandoned the attempted tender offer. On March 31, Ashland agreed to buy back First City's shares for $51 per share, or $134.1 million, resulting in a $15.4 million profit for First City. In return, First City agreed not to purchase any Ashland shares for the next 10 years.

Around the time of the buy-back agreement, the SEC began an informal inquiry into the timeliness of First City's Schedule 13D filing and requested that both First City and Bear Stearns provide a detailed chronology of events describing their contacts with each other relating to the Ashland purchases. After deposing Greenberg and Marc Belzberg, the SEC filed a civil complaint against Marc Belzberg and First City, alleging that they crossed the 5 percent threshold on March 4 but filed the required disclosure statement on March 26, twelve days past the section 13(d) deadline.

The district court found that Marc Belzberg and First City entered into an informal put and call agreement on March 4 and then deliberately violated the 10 day filing requirement of section 13(d). The district court, in an extensive opinion, relied primarily on First City's acknowledged ultimate purpose to take over Ashland, Greenberg's understanding of his March 4 telephone conversation with Marc Belzberg, the subsequent conversations between Belzberg and Greenberg, and the suspicious price of the March 17 written agreement. The court discounted Marc Belzberg's "misunderstanding" explanation as "self-serving, inconsistent with his later actions and [not] squar[ing] with the objective evidence." 688 F.Supp. at 712. Belzberg, to put it bluntly, was not credited. The court also refused to consider Greenberg's later testimony that there might have been an "honest misunderstanding" since Greenberg reached that conclusion based only on Belzberg's suggestions and statements. See id. at 720.

The district court permanently enjoined appellants from future violations of section 13(d) because they violated the statute deliberately, showed no "remorse," and were engaged in a business which presented opportunities to violate the statute in the future. See id. at 725-26. The court also ordered appellants to disgorge approximately $2.7 million, representing their profits on the 890,000 shares of Ashland stock acquired between March 14 and 25. The court reasoned that appellants were able to purchase these shares at an artificially low price due to their failure to make the section 13(d) disclosure on March 14. See id. at 726-28. Appellants appeal the district court's finding of violation as unsupported by the evidence and a product of judicial bias. They further contend that the district court abused its discretion in ordering the injunction and disgorgement remedies.

A shareholder must comply with the section 13(d) disclosure law if he beneficially owns 5 percent of a public company's equity securities. Under Commission Rule 13d-3(a), whenever a person possesses investment or voting power through any agreement or understanding, he enjoys beneficial ownership.6 Rule 13d-3 is crafted broadly enough to sweep within its purview informal, oral arrangements that confer upon a person voting or investment power. See SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1163 (D.C.Cir.1978), cert. denied, 440 U.S. 913, 99 S.Ct. 1227, 59 L.Ed.2d 462 (1979); see also Wellman v. Dickinson, 682 F.2d 355, 363-67 (2d Cir.1982), cert. denied, 460 U.S. 1069, 103 S.Ct. 1522, 75 L.Ed.2d 946 (1983). Appellants concede that a put and call agreement, even if informal, constitutes beneficial ownership to the investor of the stock subject to the agreement.

The case before the district court turned on the question whether the put and call agreement between First City and Bear Stearns was entered into on March 4, as the SEC claims, or not until March 17 as First City argues. That issue, of course, is a question of fact (or of mixed fact and law), the district court's answer to which normally may not be overturned on appeal unless clearly erroneous. See FED.R.CIV.P. 52(a). Appellants would strip the district court of the deference that the clearly erroneous standard of review requires. The district judge allegedly exhibited bias against appellants, and therefore we should examine the district court's finding and reverse if we think it simply erroneous--that is, if we conclude that the SEC failed to carry its burden of proving by a preponderance of the evidence that an agreement, arrangement or understanding existed on March 4. We have said, however, that even if bias were to be shown we would remand for new factfinding rather than engage in de novo review of the record. See Berger v. Iron Workers Reinforced Rodmen Local 201, 843 F.2d 1395, 1407 & n. 3 (D.C.Cir.) (per curiam ), reh'g granted on other grounds, 852 F.2d 619 (D.C.Cir.1988), cert. denied, --- U.S. ----, 109 S.Ct. 3155, 104 L.Ed.2d 1018 (1989); Southern Pacific Communications Co. v. AT & T, 740 F.2d 980, 984 (D.C.Cir.1984), cert. denied, 470 U.S. 1005, 105 S.Ct. 1359, 84 L.Ed.2d 380 (1985). Alternatively, appellants claim that even if bias did not taint the factfindings, the district court's findings must still be overturned, as clearly erroneous, because of the weakness of the SEC's case.

The charge of bias is drawn primarily from footnotes in the district court's opinion which, taken together, appellants argue, indicate that the judge unjustifiably thought the Belzbergs were in a disreputable business and that his "populist" view unfairly colored his findings. In one footnote, the court cites 76 newspaper articles (not placed in evidence) which describe the Belzbergs as "active corporate raiders." See 688 F.Supp. at 708 n. 1. In another footnote, the court refers to a New York magazine article which lists the Belzbergs as "greenmailers." See id. at 717 n. 12.7 In a third footnote, the district judge, appellants contend, unjustifiably criticized the Belzbergs' extra commission payment to stockbroker Alan and Katz-Goldring, suggesting that they were paid to maintain confidentiality and therefore Belzberg committed an "outrageous abuse in management of a public corporation and a blatant violation of fiduciary duties." See id. at 710-11 n. 4. The SEC did not challenge these payments, appellants did not seek to explain them, and the district court was thus apparently unaware that they could have been normal "finder's fees."8 Appellants' briefs also suggest that the district court's opinion referred gratuitously and derisively to the Belzbergs' wealth when the reference was actually to the fact that the Belzbergs are "wealthy, knowledgeable, and astute businessmen." 688 F.Supp. at 708. Finally, appellants believe the judge expressed unwarranted disapproval of normal business techniques such as the use of nominee accounts to preserve secrecy, even though the court explicitly said it "recognizes defendants' claim for the need to keep their business dealings discreet and from public view." 688 F.Supp. at 710 n. 3.

We think, at the very most, these footnotes suggest that the district judge did not admire those who specialize in investing in the market for corporate control, or even that he expressed some distaste for aspects of their normal operations. That, however, is not judicial bias. Even where a judge expresses his views on law or policy, that "preconception" may not provide the basis for a reversal if the judge still "is capable of refining his views ... and maintaining a completely open mind to decide the facts and apply the applicable law to the facts." Southern Pacific Communications v. AT & T, 740 F.2d 980, 991 (D.C.Cir.1984). We presume that a judge will set aside personal views--which given human nature are always present--and find the relevant facts solely on the evidence presented. An appellant therefore must show that a judge's mind was "irrevocably closed" on the issue before the court. See id.; see also FTC v. Cement Inst., 333 U.S. 683, 701, 68 S.Ct. 793, 803, 92 L.Ed. 1010 (1948); United States v. Haldeman, 559 F.2d 31, 136 (D.C.Cir.1976) (en banc ) (per curiam).

Appellants suggest that on argument for summary judgment the judge indicated just that degree of indifference to the relevant facts, and therefore a closed mind on the key issues, when he commented from the bench concerning First City's $15 million profit on the Ashland buy-back agreement. The judge remarked, "Isn't there something about that [that] shocks?" As with any good judge who recognizes the limitations of his or her own observation as matters of policy, however, the judge quickly reminded counsel and himself that "what shocks one, and when one applies the law to the situation are two different things." He also said at that hearing, as appellants emphasize, that he had "some idea as to how [he] feel[s] the case should be decided." But that statement was in the context of further remarking, "[Y]ou don't necessarily infer that from my views about the case, and any questions that I have asked."9 In other words, he promised the parties that he would decide the case on the merits apart from his personal views. We see absolutely no indication that he betrayed that promise. Moreover, after examining his carefully crafted opinion (with the exception of only the few footnotes) as well as the record, we do not see how the district judge could have decided the factual issue any differently had he fervently believed that a vigorous market for corporate control was welfare enhancing and that if there is any fault to "greenmail" it lies in the payment, not in the receipt. Indeed, appellants' allegations of bias in this case are barely colorable and have been constructed only by distorting and quoting out of context snippets of the judge's comments and opinion.

We now turn to the district court's factfindings to measure them against the clearly erroneous standard. Under that test, "[i]f the district court's account of the evidence is plausible in light of the record viewed in its entirety," we must uphold the factfinding even if we would have weighed the evidence differently. Anderson v. Bessemer City, 470 U.S. 564, 573-74, 105 S.Ct. 1504, 1511-12, 84 L.Ed.2d 518 (1985). Thus, the SEC's version of the disputed events, essentially adopted by the district court, need only be "plausible" in order not to be clearly erroneous. See id. And insofar as the lower court's finding is predicated on a credibility determination--here the court's disbelief of Belzberg--it is even further insulated from our scrutiny. See id. at 575, 105 S.Ct. at 1512.

It is not at all clear to us that the SEC's burden in this case, as appellants claim, is to prove Belzberg's "subjective intent" on March 4 to enter into an agreement with Bear Stearns whereby the latter purchased shares for First City. Whether a contract is formed is not normally thought to depend on the subjective intention of one of the parties. See Brown Bros. Elec. Contractors, Inc. v. Beam Constr. Corp., 41 N.Y.2d 397, 393 N.Y.S.2d 350, 361 N.E.2d 999 (1977); see generally A. FARNSWORTH, CONTRACTS Sec. 3.6 at 114 (1982).10 If there were an actual contract a fortiori there was an "understanding." Assuming arguendo, however, that appellants state the issue correctly, we think the government presented a powerful case that Belzberg did intend to enter into a put-call agreement with Greenberg on March 4 and therefore purposely sought to circumvent section 13(d)'s disclosure requirements. That some of the evidence of Belzberg's intent is circumstantial makes it no less probative or forceful. Appellants seem to suggest incorrectly that the only competent evidence of Belzberg's intent would be direct statements revealing that intent.

First, it will be remembered, less than two weeks after the March 4 call, First City embarked on a full scale takeover attempt of Ashland, and all of their actions beforehand seem to foreshadow that step. From the very beginning of First City's interest in Ashland, the company was apparently eyed as a potential takeover target rather than just an investment. First City's analysts studied the breakup value of Ashland and its component businesses, and Pace consultants were under the impression that First City was evaluating the oil company as a target. On February 26, First City switched its Ashland business from Katz-Goldring to Bear Stearns, whose larger capital accommodated put and call arrangements that enable large pre-merger accumulations and which was presumably unaware of the size of First City's position in Ashland stock. Then Belzberg asked Greenberg to buy directly approximately 53,000 shares of Ashland for First City. Those purchases between February 26 and 28 brought First City to 4.9 percent, even closer to the 5 percent line and set the stage for a large put-call agreement.11 It certainly seems more than a little strange, then, that after having directed Bear Stearns to buy for First City's account 53,000 shares of Ashland, Belzberg, only a week later, would call Greenberg only to suggest that Bear Stearns buy Ashland stock for itself.

In light of the two men's discussion relating to the purchase of Hartmarx stock three months earlier, First City's decision to turn to Bear Stearns only after the Belzbergs had acquired almost 5 percent of Ashland strengthens the inference that on March 4 Marc Belzberg intended Bear Stearns to purchase further stock for First City's benefit. Belzberg had, at that earlier time, called Greenberg and asked Bear Stearns to buy Hartmarx corporation stock on First City's behalf through a put and call agreement. Greenberg was aware at the time that First City held just under 5 percent of Hartmarx's total stock, and he warned Belzberg that their proposed put and call agreement might cross the section 13(d) line. After his lawyers confirmed the section 13(d) problem, Belzberg called Greenberg and explicitly and carefully recommended that Greenberg buy stock for Bear Stearns' own account. The Hartmarx experience taught Belzberg not only that a put and call arrangement qualified as beneficial ownership under section 13(d) but also that if he only intended to "recommend" stock to Greenberg, he needed to clarify that instruction to avoid ambiguity. Belzberg also understood that Greenberg might question the legality of his trades if the latter knew (and might be charged with knowing?) that First City was close to the 5 percent line. This could explain why Bear Stearns was not brought in until First City was already on the 5 percent threshold.

Perhaps the most important piece of circumstantial evidence tending to show that Belzberg had asked Greenberg on March 4 to buy stock for First City under a put-call agreement is the price First City paid Bear Stearns for the stock. That aggregate price was $450,000 below market on March 17 (but reflects the market price on the dates that Bear Stearns purchased the stock from March 4 to March 17) and surely suggests by itself that both parties understood that Bear Stearns had previously purchased the stock as First City's agent and therefore was only entitled to its normal costs and commission when transferring the stock to First City.

Even had there been no testimony at all from either participant on the March 4 telephone conversation, we think the SEC's other evidence would have made out a substantial prima facie case. But the participants testified as to what was said during the call, and Greenberg's version supports the SEC's case. To be sure, Greenberg's testimony--that Belzberg said something like, "It wouldn't be a bad idea if you bought Ashland Oil here"--sounds somewhat imprecise, but Greenberg also said "I was absolutely under the impression I was buying at their risk and I was going to do a put and call." It is more than a little difficult to imagine how Greenberg could possibly have received such a clear impression unless Belzberg conveyed the message Greenberg thought he received. After all, Greenberg was hardly a novice in the business and would not be expected immediately to buy 20,500 shares of stock (worth approximately $800,000) and to continue to purchase enormous amounts of stock for a client without any direction.

A little over a month after the March 4 phone call, Bear Stearns submitted a chronology of events in response to the SEC's request. The March 4 entry corroborates Greenberg's testimony but puts it a bit more sharply:

Alan Greenberg ... received a phone call from Marc Belzberg ... in which Mr. Belzberg asked that Bear, Stearns begin accumulating Ashland stock. Mr. Greenberg understood this to mean, as in the case of other securities purchased by Bear, Stearns in which First City had an interest, that as soon as Bear, Stearns had accumulated a sizable position, we would enter into a written put and call agreement with First City. (emphasis added).

Appellants vigorously object to the admission of the chronology as hearsay since it relies on Greenberg's out-of-court declarations. The district court admitted the chronology under the "residual" exception to the hearsay rule. When a statement is not specifically exempted from the general hearsay prohibition, Rule 803(24) allows the introduction of the statement if it is invested with "equivalent circumstantial guarantees of trustworthiness," is more probative than other evidence that the proponent can reasonably procure, and serves the interests of justice. We recognize that the legislative history of this exception indicates that it should be applied sparingly. See United States v. Kim, 595 F.2d 755, 765 (D.C.Cir.1979). But we also acknowledge the broad discretion a trial court enjoys in assessing the probity and trustworthiness of documents. See United States v. Reese, 561 F.2d 894, 903 n. 18 (D.C.Cir.1977). Since the residual hearsay exception depends so heavily upon a judgment of reliability, typically we would be particularly deferential to the trial court's determinations under Rule 803(24). See, e.g., Balogh's of Coral Gables, Inc. v. Getz, 798 F.2d 1356, 1358 (11th Cir.1986); Huff v. White Motor Corp., 609 F.2d 286, 291 (7th Cir.1979). Appellants had ample opportunity to cross-examine Greenberg about his out-of-court statements during his two depositions to probe for weaknesses. They also could challenge David Hyman's preparation of the chronology during Hyman's deposition. Thus, the primary rationale for the hearsay rule--the inability to cross-examine the out-of-court declarant on the veracity of his statement--was at least partially offset here. See United States v. Iaconetti, 406 F.Supp. 554, 558-60 (E.D.N.Y.1976), aff'd, 540 F.2d 574 (2d Cir.1976); see also United States v. Scrima, 819 F.2d 996, 1001 (11th Cir.1987); J. WEINSTEIN & M. BERGER, WEINSTEIN'S EVIDENCE Sec. 803(24) at 803-375 (1988). Furthermore, any false statements in the chronology would be subject to criminal prosecution under 18 U.S.C. Sec. 1001. See United States v. White, 611 F.2d 531, 537-38 (5th Cir.) (concluding that out-of-court statements can be trustworthy if made under threat of prosecution for false statements), cert. denied, 446 U.S. 992, 100 S.Ct. 2978, 64 L.Ed.2d 849 (1980).12 Finally, before the chronology was sent to the SEC, Greenberg apparently reviewed the document for accuracy. The chronology thus represented the most contemporaneous account of the March 4 conversation.13

We conclude then that the district court did not commit error in admitting into evidence the Bear Stearns chronology under the residual hearsay exception. But even had the chronology been improperly admitted, the statements were merely cumulative and corroborating evidence of Greenberg's understanding of Belzberg's intent during the March 4 phone call and therefore would be harmless error. See FED.R.CIV.P. 61 ("No error in either the admission or exclusion of evidence ... is ground for granting a new trial ... unless refusal to take such action appears to the court inconsistent with substantial justice."); Coughlin v. Capitol Cement Co., 571 F.2d 290, 306-07 (5th Cir.1978).

Nevertheless, appellants argue that Belzberg could not have intended to direct Greenberg to purchase Ashland stock for First City's account on March 4, because there was no discussion of price and quantity. In fact, Greenberg testified that Belzberg "must have" mentioned a price and quantity. In any event, if the parties wished a put-call agreement, Belzberg's intended price was not a necessary term, for it was understood that under that arrangement Bear Stearns would buy at market and charge First City only its costs and normal commission. Greenberg, moreover, kept in close telephone contact with Belzberg, advising him as to the quantity of shares Greenberg was purchasing. Greenberg testified, for example, that he would tell Belzberg "I now own 150,000 and [Belzberg would] say 'Fine.' " Or, at other times, Belzberg responded "Fine, keep going" or something to that effect. Belzberg had continuous and at least approximate information as to Bear Stearns' purchases of Ashland, both as to price and amount.

Appellants' last attack on the SEC's evidence is a variant of the "dog that doesn't bark." According to appellants, the parties could not have reached a put-call agreement on March 4 because the customary "paper trail" that accompanies those transactions was absent. Bear Stearns typically would send confirmation slips, as well as a formal letter agreement, soon after a trade and would require its customers to send a "margin" or deposit within seven days of the agreement. Greenberg explained that in this case, however, he was accumulating Ashland shares until he had a sizable block at which point he intended, as he did on March 17, to formalize the put-call agreement. And as the district court found, "there was no consistent pattern in the time interval between an oral put/call agreement, the preparation and execution of the agreement, and its dispatch to First City." 688 F.Supp. at 719 (emphasis added). In other words, Greenberg's put-call dealings with First City were "informal," as the SEC put it, apparently because Greenberg felt no need for formal legal protection.

The government's affirmative case against First City, in sum, was quite strong, and not, as appellants claim, predicated on unwarranted inferences and weak circumstantial evidence. Marc Belzberg testified in his own behalf and gave a competing account of the events and their appropriate interpretation. The district judge, as we have indicated, did not credit the testimony, and we find unassailable the district court's assessment of Belzberg's account as implausible.

At the threshold of Belzberg's version of the events is his claim that on March 4 he had "recommended" to Greenberg that Bear Stearns buy Ashland stock for Bear Stearns' own account, because if it subsequently turned out that First City wished to acquire Ashland, the takeover would be more easily accomplished if Ashland stock were held "loosely" by arbitrageurs (short-term speculators more inclined to cash in on a quick profit) rather than remain in what appellants refer to as "forgotten safe-deposit box[es]." This explanation for Belzberg's call to Greenberg is unconvincing. First, Bear Stearns is in the business of recommending stocks to customers (f