rated, Meredith Parker, Ralph W. Wood, and H. E. Blanchett; and Keyes & Erskine, Esqs., and Louis Ferrari, Esq., having appeared for the defendants Bank of America National Trust and Savings Association and L. Mario Giannini; and Dreher, McClellan & McCarthy, Esq., having appeared for the defendant A. P. Giannini and John L. McNab, Esq., having appeared for the defendant John M. Grant; and evidence having been submitted by the parties and due deliberation having been had thereon, and the court having filed its findings of fact and conclusions of law on December 13, 1940, directing therein that judgment be entered in favor of the plaintiff and against the defendants in accordance with the demand of the complaint; Now, THEREFORE, IT IS ADJUDGED, ORDERED, AND DECREED: That the defendants Timetrust, Incorporated, a corporation, Bank of America National Trust and Savings Association, a corporation, Meredith Parker, Ralph W. Wood, H. E. Blanchett, A. P. Giannini, L. Mario Giannini, and John M. Grant, their agents, servants, representatives, and employees, and all other persons acting by or under their direction or authority, and all other persons in active concert or participation with them, be perpetually enjoined and restrained from, in the sale of Timetrust Certificates and common stock of Bank of America National Trust and Savings Association, or any other securities, by the use of the mails, directly or indirectly I Employing a device, scheme, or artifice to defraud, particularly in devising, operating, and representing a plan or scheme of common stock speculation in Bank of America National Trust & Savings Association stock as a savings bank account or as a plan of investment similar to a savings bank account or employing any other device, scheme, or artifice to defraud purchasers similar to that set forth above, or of a similar purport or object. II Obtaining money or property by means of untrue statements of material facts or omissions to state material facts necessary to be stated in order to make the statements made, in the light of the circumstances under which they are made, not misleading, concerning: (1) The similarity of such securities to a savings bank account and to the yield thereon and earnings thereof; (2) The amounts available to and withdrawable by by purchasers; (3) The safeness, soundness, or security of such securities as investments to assure accumulation of definite sums of money for specific purposes; (4) The application of the principle of dollar averaging to such securities; (5) The principle of dollar averaging and compounding; (6) The cost to purchasers of Bank of America National Trust and Savings Association stock under the Timetrust Plan; (7) The freedom from all risks or errors arising from the exercise of human judgment of a purchaser of such securities; (8) The effect of compounding income; (9) The compounding of unrealized appreciation; (10) The combined return from income and appreciation of such securities; (11) Insurance protection available under the Timetrust Plan ; (12) The fees and charges attached to such securities; (13) The reason for selection of Bank of America National Trust and Savings Association stock as the investment medium; and (14) The stabilizing or other activities affecting the market price of the stock of Bank of America National Trust and Savings Association, or any other untrue statements of material facts or other omissions to state material facts necessary to be stated in order to make the statements made, in the light of the circumstances under which they are made, not misleading, similar to those specifically set forth above or of similar purport or object. Approved. Dated this 16th day of January 1941. WALTER B. MALING, ALBERT M. SAMES. Clerk of the United States District Court. EXHIBIT C IN THE SOUTHERN DIVISION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA United States of America and Securities and Exchange Commisison, Plaintiffs, v. William J. Mahaney, Bank of America National Trust & Savings Associa tion, a national banking association, L. Mario Giannini, Transamerica Corporation, a corporation, and Timetrust, Incorporated, a corporation, defendants Civil Action. No. 21184-R Thurman Arnold, Assistant Attorney General of the United States; ChesterT. Lane, General Counsel of the Securities and Exchange Commission; O. John Rogge; John L. Geraghty; Frank J. Hennessy, Attorneys for Plaintiff. Sibbett & Miller, Attorneys for William J. Mahaney; Keyes and Erskine, Attorneys for Bank of America National Trust & Savings Association; Theodore M. Stuart, Attorney for L. Mario Giannini; Dreher, McClellan & McCarthy, Attorneys for Transamerica Corporation; Bacigalupi, Elkus & Salinger, Attorneys for Timetrust, Inc.; All of San Francisco, California. ST. SURE, District Judge: OPINION The Government seeks a temporary injunction to prevent the use by defendants, in pending adversary litigation, of confidential information obtained by William J. Mahaney while in the employ of the Government, Mahaney having been recently hired by defendant Bank of America National Trust & Savings Association, hereinafter called the bank. The motion was heard upon the verified complaint and supporting affidavits; answers of defendants other than Mahaney, affidavits in opposition, and the "consent" of Mahaney. On November 22, 1938, the Securities and Exchange Commission commenced proceeding under Sec. 19 (a) (2) of the Securities Exchange Act of 1934, as amended, to determine whether the registration of Transamerica Corporation capital stock, $2 par value, should be suspended or withdrawn. In the order for hearing it is stated that the Commission has reasonable grounds to believe that Transamerica Corporation has failed to comply with certain provisions of the Securities Exchange Act of 1934, as amended, and certain rules and regulations promulgated by the Commission, in that the application for registration filed by said corporation contains false and misleading statements of material facts, including financial statements of said corporation and its subsidiaries, which do not correctly reflect the true financial condition of the corporation and its subsidiaries. The false and misleading statements are particularly set forth, and in Paragraphs VII and VIII of the order mention is made of the "Combined Report of Condition" of Bank of America National Trust & Savings Association, First National Bank in Reno, Bank of America (California) as of December 31, 1936. On February 8, 1939, an order amending the order for hearing was made, in which appears the following: "The Commission has reasonable grounds to believe that for several years: prior to July 15, 1937, the registrant owned, directly or through a wholly-owned subidiary, 99.65% of the outstanding capital stock of Bank of America National Trust and Savings Association; that on or about July 15, 1937, the registrant distributed to its own stockholders approximately 58% of the stock of Bank of America National Trust and Savings Association thus owned by it; that from July 15, 1937, to the date of the filing of the annual report, registrant has continued to hold approximately 42% of the outstanding capital stock of Bank of America National Trust and Savings Association while the remaining 58% has been held by approximately 150,000 stockholders, no one of whom holds as much as 1% of the stock. The Commission further has reasonable grounds to believe that the officers and directors of Bank of America National Trust and Savings Association remained substantially the same after the distribution by the registrant of 58% of its holdings in the stock of the Bank as they had been prior to such distribution; that during 1937 and at the date of the filing of the annual report A. P. Giannini was Chairman of the Board of both the registrant and of Bank of America National Trust and Savings Association, L. M. Giannini, the son of A. P. Giannini, was president of Bank of America Na tional Trust and Savings Association, and that many of the officers and directors of Bank of America National Trust and Savings Association were also officers and directors of the registrant or of its wholly owned subsidiaries; that a substantial portion of the business and activities of Bank of America National Trust and Savings Association during 1937 and at the date of the filing of the annual report has been effected with the registrant and its wholly owned subsidiaries. "It therefore appears to the Commission that during the entire year 1937 and at the date of the filing of the annual report, the registrant possessed the power to direct or cause the direction of the management and policies of Bank of America National Trust and Savings Association, and that registrant's omission in its response to Item 1 (a) of its annual report on Form 24-K to list Bank of America National Trust and Savings Association as a subsidiary of the registrant renders the response materially false and misleading." Timetrust, Incorporation, a corporation, was organized on June 23, 1938. The complaint alleges that after an informal investigation by the Commission's staff to determine whether Timetrust is engaged in acts or practices which constituted violations of certain sections of the Securities Acts of 1933 as amended, the Commission, on December 21, 1938, issued a formal order for investigation. Thereafter, and on April 5, 1939, the Commission filed a complaint in this court, No. 21180-L, against L. Mario Giannini, Timetrust, Bank of America, and others, to enjoin the defendants therein from violating Sec. 17 (of the Securities Act of 1933 as amended, 48 Stats. 84, 15 USCA 77q (a)). The complaint in action No. 21180-L alleges: ** * * * * "Defendants A. P. Giannini, L. Mario Giannini, and John M. Grant, aided and abetted defendant Timetrust, Incorporated, and its officers, directors, and agents to engage in the acts and practices which plaintiff seeks to enjoin. Defendants Bank of America National Trust & Savings Association, of which A. P. Giannini is Chairman of the Board of Directors and L. Mario Giannini is President and a director, and Meredith Parker, Ralph W. Wood, and H. E. Blanchett, who are officers of Timetrust, Incorporated, and constitute the board of directors thereof, have participated and continue to participate in the acts and practices which plaintiff seeks to enjoin. Since on or about August 11, 1938, defendants Timetrust, Incorporated, Meredith Parker, Ralph W. Wood, and H. E. Blanchett have been and now are, selling and causing to be sold, and defendants A. P. Giannini, L. Mario Giannini, John M. Grant, and Bank of America National Trust & Savings Association, have been and now are abetting the sale, by the use of the mails, securities, to-wit, (1) Timetrust Certificates, and (2) common stock of Bank of America National Trust & Savings Association, a corporation, of which defendant A. P. Giannini is Chairman of the Board of Directors, and L. Mario Giannini is President and a director. Such Securities are sold to the public pursuant to the terms of an agreement of trust called a "Trust Agreement,' dated August 16, 1938, between Timetrust, Incorporated, Title Insurance and Guaranty Company, designated the 'trustee' under the agreement, and the holders from time to time of Timetrust Certificates (therein and sometimes hereinafter referred to as 'trustors'). In the sale of such securities to the public by the use of the mails, defendants Timetrust, Incorporated, Meredith Parker, Ralph W. Wood, and H. E. Blanchett, aided and abetted by the defendants A. P. Giannini, L. Mario Giannini, John M. Grant, and Bank of America National Trust & Savings Association, have employed and are employing a device, scheme, and artifice to defraud, and have obtained and are obtaining money and property by means of untrue statements of material facts and omissions to state material facts necessary to be stated in order to make the statements made, in the light of the circumstances under which they were made, not misleading * * It thus appears that all of the defendants herein and others are inextricably involved in the above-described adversary proceedings. At the opening of the hearing on the motion there was presented to the court and filed a verified "Consent by Defendant William J. Mahaney to Issuance of Permanent Iniunction" against him. In his "consent" Mahaney admits his employment as attorney by the Commission from March 25, 1935, to January 3, 1939; admits during the period of such employment the institution and pendercy of the proceedings under Sec. 19 (a) (2) of the Securities Exchange Act of 1934 and the litiation in case No. 21180-L hereinabove particularly described: admits that he was retained as attorney for the bank by agreement with L. Mario Giarnini. alleges "that a controversy has arisen" between the plaintiffs and defendants herein as to the propriety of his retention as attorney for the bank in view of his prior employment by the Commission; alleges "this defendant is now of the * opinion that the propriety of his retention as such attorney for said Bank in the circumstances above described is, on general equitable grounds, open to question, and that he desires to avoid any implication of improper action on his part; that pursuant to such desire he has on April 22, 1939, tendered to the defendant, Bank of America National Trust and Savings Association, and to defendant, L. Mario Giannini, its president, his resignation as an attorney for said Bank, and that such resignation was on that date accepted. * *"; denies that he was retained for the purpose of disclosing, or has ever disclosed to defendants herein, or any of them, any confidential information of any kind or character obtained by him or available to him as an attorney for plaintiff, Securities and Exchange Commission; alleges "this defendant has no desire to raise any issue of fact regarding the allegations of said complaint, and the application for a temporary relief filed herein, and the supporting affidavits; and that, in consenting to the issuance of a permanent injunction as herein prescribed, he stipulates that no findings of fact or conclusions of law need be made by the Court in issuing said injunction, and requests that said injunction issue without the necessity for any hearing thereon; that in view of his resignation above set forth, and of his desire that this controversy as to the propriety of his employment be terminated, he respectfully requests this Court to issue a permanent injunction in the form above described." Whereupon the attorneys for all other defendants moved to dismiss as to them. Defendant Mahaney is thirty-two years of age. He was admitted to practice law in 1933. From March 25, 1935, to and including January 3, 1939, he was employed on active duty with the Commission as an attorney. From June 1, 1936, up to and including January 3, 1939, except for a short period of duty in the Washington office of the Commission, Mahaney discharged his duties in San Francisco under Howard A. Judy, Regional Administrator in Charge, with offices at #625 Market Street. On January 3, 1939, Mahaney resigned from the Government service. During the course of Mahaney's employment numerous investigations of Transamerica, Timetrust, L. Mario Giannini, and other persons were being conducted by the Commission pursuant to authority vested in it by the Securities Act and the Securities Exchange Act to determine whether certain provisions of these acts were being violated. With the exception of formal public proceedings these investigations were of a private nature, and were kept in strictest confidence. During his emloyment Mahaney had full access to all books, records, papers, correspondence, and memoranda relating to the investigations and proceeding mentioned herein, in the San Francisco regional office and in the Washington office. At the time of his resignation Mahaney was being paid for his services as an attorney for the Commission a salary of $4,000 a year. He was employed for part time service by the bank at a salary of $7,500 a year. Defendant L. Mario Giannini, in an affidavit, tells the story of Mahaney's employment by the bank, which is, in substance, as follows: Giannini was introduced to Mahaney in the summer of 1938, and was informed that Mahaney was contemplating severing his relations with the Securities and Exchange Commission and going into private practice. It was suggested that as Mahaney had had four years' experience in the interpretative work of the Commission it might be advantageous to retain him to advise the bank in matters respecting the Securities and Exchange Act. On December 24, 1938, at Giannini's home in San Mateo County, he discussed the subject with Mahaney alone. Giannini told Mahaney that if he, Mahaney, could get the consent of the Commission to such employment, the bank would retain him for $7,500 a year, commencing in January 1939. Later Mahaney reported that he had talked by telephone with Robert O'Brien, Assistant General Counsel in charge of the Commission attorneys, and with Edwin Sheridan, Executive Assistant to the Chairman of the Commission, at Washington, D. C., and they had no objection to his accepting such retainer. Giannini thereupon retained Mahoney in January 1939, with the understanding that he was to maintain his own office and take private practice. Mahaney, at Giannini's request, made a study of the Commission's orders and charges in the proceedings pursuant to Sec. 19 (a) (2) of the Securities Exchange Act of 1934 against Transamerica, many of which charges involved matters relating to the bank, a large portion of the capital stock of which was held by Transamerica; of the transcript of the testimony in said proceedings; the relations of said proceedings to and their effect on said bank; and the registration, statements, and annual reports filed by Transamerica with the Commission; and then prepared and submitted to Giannini an analytical memorandum of about seventy-five pages. Edwin A. Sheridan, Executive Assistant to the Chairman of the Securities and Exchange Commission, and Robert H. O'Brien, Assistant Counsel of the Commission, state in their affidavits that at the call of Mahaney they had a telephonic conversation with him in which he said he had received an offer of employment from Giannini which he thought he would accept. Sheridan told Mahaney acceptance was unthinkable. O'Brien told Mahaney that it would be Improper and unwise for him to act as legal adviser to Giannini or affiliated interests. Mahaney replied that "he was sure a lawyer would not feel that it would violate the canons of legal ethics." He said that he had been misunderstood; that he would be associated with a well-known firm of attorneys; that the Giannini proposition was a matter for the future as there was no definite commitment on either side. Both Sheridan and O'Brien then told Mahaney that they saw no reason why he might not leave the Commission to associate with a private law firm, but that if he engaged to act as legal advisor for Giannini or affiliated interests, the matter should first be presented to the Commission. L. Mario Giannini says he relied upon Mahaney's word that he had received the consent of the Commission to accept the proffered retainer. Giannini is not only a banker, but he is also a lawyer; yet he himself never inquired of the Commission whether consent would be given to his employment of Mahaney. Mr. Judy, Mahaney's immediate superior in San Francisco, readily accessible, was not consulted about the matter by either Giannini or Mahaney. The Canons of Professional Ethics of the American Bar Association are addressed to the conscience of every lawyer. "It is unprofessional to represent conflicting interests, except by express consent of all concerned given after a full disclosure of the facts. * * * "The obligation to represent the client with undivided fidelity and not to divulge his secrets or confidences forbids also the subsequent acceptance of retainers or employment from others in matters adversely affecting any interest of the client with respect to which confidence has been reposed." Canon 6, Vol. 62, Reports of American Bar Association, 1937, p. 1107. "A lawyer, having once held public office or having been in the public employ, should not after his retirement accept employment in connection with any matter which he has investigated or passed upon while in such office or employ." Canon 36, ib., p. 1118. * * "No client, corporate or individual, however powerful, nor any cause, civil or political, however important, is entitled to receive nor should any lawyer render any service or advice involving disloyalty to the law whose ministers we are, * or corporation of any person or persons exercising a public office or private trust, or deception or betrayal of the public. When rendering any such improper service or advice, the lawyer invites and merits stern and just condemnation. Correspondingly, he advances the honor of his profession and the best interests of his client when he renders service or gives advice tending to impress upon the client and his undertaking exact compliance with the strictest principles of moral law. * * But above all a lawyer will find his highest honor in a deserved reputation for fidelity to private trust and to public duty, as an honest man and as a patriotic and loyal citizen." Canon 32, ib., pp. 1116–1117. * "It is the duty of an attorney and counselor: 5. To maintain inviolate the confidence, and at every peril to himself, to preserve the secrets of his client." Sec. 282 Code of Civil Procedure of California. * * * The resignation of Mahaney and his "consent" to the issuance of a permanent injunction against himself is tantamount to an admission of the charges made against him by the Commission. He "has no desire to raise any issue of fact regarding the allegations of said complaint. and the supporting affidavits." He denies that while acting as attorney for the bank he disclosed any confidential information obtained or available to him as an attorney for the Commission. But the facts demonstrate otherwise. In his affidavit L. Mario Giannini says: "Mahaney, at my request, made a study of the Commission's orders and charges in the proceedings pursuant to Section 19a (2) of the Securities Exchange Act of 1934 against Transamerica, many of which charges involved matters relating to the Bank, a large portion of whose capital stock was held by Transamerica, the transcript of the testimony in said proceedings, and the relation of said proceedings to and the effect of said proceedings on said Bank, and the registration statements and annual reports filed by Transamerica with the Commission, and he prepared and submitted to me a memorandum of approximately seventy74947-42-pt. 5-15 |