Opinion ID: 109342
Heading Depth: 1
Heading Rank: 4

Heading: Additional considerations support our reading of the legislative history.

Text: Section 16 (b) imposes a strict prophylactic rule with respect to insider, short-swing trading. In Kern County Land Co., 411 U. S., at 595, we noted: The statute requires the [statutorily defined] inside, short-swing trader to disgorge all profits realized on all `purchases' and `sales' within the specified time period, without proof of actual abuse of insider information, and without proof of intent to profit on the basis of such information. In short, this statute imposes liability without fault within its narrowly drawn limits. [26] As noted earlier, Foremost recognizes the ambiguity of the exemptive provision, but argues that where alternative constructions of § 16 (b)'s terms are available, we should choose the construction that best serves the statute's purposes. Foremost relies on statements generally to this effect in Kern County Land Co., supra, at 595, and Reliance Electric Co., 404 U. S., at 424. IN neither of those cases, however, did the Court adopt the construction that would have imposed liability, thus recognizing that serving the congressional purpose does not require resolving every ambiguity in favor of liability under § 16 (b). We reiterate that nothing suggests that the construction urged by Foremost would serve better to further congressional purposes. Indeed, the legislative history of § 16 (b) indicates that by adding the exemptive provision Congress deliberately expressed a contrary choice. But even if the legislative record were more ambiguous, we would hesitate to adopt Foremost's construction. It is inappropriate to reach the harsh result of imposing § 16 (b)'s liability without fault on the basis of unclear language. If Congress wishes to impose such liability, we must assume it will do so expressly or by unmistakable inference. It is not irrelevant that Congress itself limited carefully the liability imposed by § 16 (b). See Reliance Electric Co., supra, at 422-425. Even an insider may trade freely without incurring the statutory liability if, for example, he spaces his transactions at intervals greater than six months. When Congress has so recognized the need to limit carefully the arbitrary and sweeping coverage of § 16 (b), Bershad v. McDonough, 428 F. 2d 693, 696 (CA7 1970), cert. denied, 400 U. S. 992 (1971), courts should not be quick to determine that, despite an acknowledged ambiguity, Congress intended the section to cover a particular transaction.
Our construction of § 16 (b) also is supported by the distinction Congress recognized between short-term trading by mere stockholders and such trading by directors and officers. The legislative discourse revealed that Congress thought that all short-swing trading by directors and officers was vulnerable to abuse because of their intimate involvement in corporate affairs. But trading by mere stockholders was viewed as being subject to abuse only when the size of their holdings afforded the potential for access to corporate information. [27] These different perceptions simply reflect the realities of corporate life. It would not be consistent with this perceived distinction to impose liability on the basis of a purchase made when the percentage of stock ownership requisite to insider status had not been acquired. To be sure, the possibility does exist that one who becomes a beneficial owner by a purchase will sell on the basis of information attained by virtue of his newly acquired holdings. But the purchase itself was not one posing dangers that Congress considered intolerable, since it was made when the purchaser owned no shares or less than the percentage deemed necessary to make one an insider. [28] Such a stockholder is more analogous to the stockholder who never owns more than 10% and thereby is excluded entirely from the operation of § 16 (b), than to a director or officer whose every purchase and sale is covered by the statute. While this reasoning might not compel our construction of the exemptive provision, it explains why Congress may have seen fit to draw the line it did. Cf. Adler v. Klawans, 267 F. 2d 840, 845 (CA2 1959).
Section 16 (b)'s scope, of course, is not affected by whether alternative sanctions might inhibit the abuse of inside information. Congress, however, has left some problems of the abuse of inside information to other remedies. These sanctions alleviate concern that ordinary investors are unprotected against actual abuses of inside information in transactions not covered by § 16 (b). For example, Congress has passed general antifraud statutes that proscribe fraudulent practices by insiders. See Securities Act of 1933, § 17 (a), 48 Stat. 84, 15 U. S. C. § 77q (a); Securities Exchange Act of 1934, § 10 (b), 15 U. S. C. § 78j (b); 3 Loss, supra, n. 11, at 1423-1429, 1442-1445. Today an investor who can show harm from the misuse of material inside information may have recourse, in particular, to § 10 (b) and Rule 10b-5, 17 CFR § 240.10b-5 (1975). [29] It also was thought that § 16 (a)'s publicity requirement [30] would afford indirect protection against some potential misuses of inside information. [31] See Hearings on H. R. 7852 and H. R. 8720, supra, at 134-135; H. R. Rep. No. 1383, 73d Cong., 2d Sess., 13 (to accompany H. R. 9323, 73d Cong., 2d Sess., passed by the House, May 4, 1934, without the present § 16 (b)).