The opinion of the court was delivered by: Cedarbaum, District Judge.
In a forty-six count indictment (the "Indictment"),
defendant Robert Howard Willis is charged with securities
fraud and mail fraud in connection with his purchases of
common stock of the BankAmerica Corporation ("BankAmerica") in
January and February of 1986. The defendant, a psychiatrist,
is charged with having used material, non-public information
acquired from a patient for profitable trading in the stock of
BankAmerica. Dr. Willis is charged in Counts One through
Twenty-Three with securities fraud in violation of Sections
10(b) and 32 of the Securities Exchange Act of 1934, 15 U.S.C. § 78j,
78ff, and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
Counts Twenty-Four through Forty-Six charge that Willis'
conduct constituted mail fraud in violation of 18 U.S.C. § 1341
Dr. Willis has moved pursuant to Fed.R. Crim.P. 12(b) to
dismiss all counts of the Indictment on the ground that the
Indictment fails to allege any criminal offense. For the
reasons discussed below, defendant's motion is denied.
In considering a motion to dismiss an indictment, I must
assume the truth of the facts as alleged in the indictment.
Boyce Motor Lines, Inc. v. United States, 342 U.S. 337, 343 n.
16, 72 S.Ct. 329, 332 n. 16, 96 L.Ed. 367 (1952); United States
v. Pacione, 738 F.2d 567, 568 (2d Cir. 1984); United States v.
Von Barta, 635 F.2d 999, 1002 (2d Cir. 1980), cert. denied,
450 U.S. 998, 101 S.Ct. 1703, 68 L.Ed.2d 199 (1981). The facts as
alleged in the Indictment may be summarized as follows.
Beginning in late October or early November 1985, Sanford I.
Weill developed an interest in becoming Chief Executive
Officer ("CEO") of BankAmerica. Between 1970 and 1981, Weill
served as the CEO of Shearson Loeb Rhodes and several of its
predecessor entities (collectively "Shearson"). In 1981, Weill
sold his controlling interest in Shearson to the American
Express Company, and between 1981 and 1985, he served as
President of American Express. As part of his effort to become
CEO of BankAmerica, Weill secured a commitment from Shearson
to invest $1 billion in BankAmerica if he was successful in
his negotiations with BankAmerica.
Throughout late January and February 1986, Weill attempted
to meet with several of the directors of BankAmerica in order
to discuss his proposals for BankAmerica. Until at least
February 20, 1986, these contacts were not disclosed publicly.
During the period in which Weill was attempting to negotiate
with BankAmerica, the public information regarding BankAmerica
was generally unfavorable. There were news reports that
Moody's Investors' Service had downgraded $5.7 billion of debt
owed by BankAmerica, that BankAmerica had incurred a loss of
$178 million in the fourth quarter of 1985, and that
posted a net loss of $337 million for calendar year 1985.
On February 20, 1986, BankAmerica announced that Weill had
sought to become its CEO but that BankAmerica was not
interested in his offer. On February 20, 1986, BankAmerica
stock traded on the New York Stock Exchange at prices ranging
from 13 7/8 to 15 3/8 per share. The day after the
announcement, BankAmerica stock traded on the New York Stock
Exchange at prices ranging from 14 to 151/2. During the five
weeks preceding the announcement, BankAmerica stock had traded
on the New York Stock Exchange at prices ranging between 12
and 14 7/8.
Weill discussed his effort to become CEO of BankAmerica with
his wife. Weill's wife was a patient of Dr. Willis.*fn1 Mrs.
Weill discussed her husband's efforts to become CEO of
BankAmerica with Dr. Willis prior to the public announcement
of Weill's interest in Bankamerica. She also disclosed to Dr.
Willis that Shearson had agreed to invest in BankAmerica if
Weill succeeded in becoming its CEO.
From approximately January 14, 1986 until February 6, 1986,
Dr. Willis disclosed to his broker this material, confidential
information, and purchased BankAmerica common stock. Between
those dates, Dr. Willis purchased a total of 13,000 shares of
BankAmerica common stock for himself and his children at
prices ranging from 12 1/8 to 14 3/4 per share. On February
21, 1986, after the public announcement of Weill's effort to
become CEO of BankAmerica, Dr. Willis sold at a Price of 15
3/8 per share all the BankAmerica common shares that he had
purchased between January 14 and February 6, 1986. The total
profit was approximately $27,475.79.
Dr. Willis purchased his position in BankAmerica common
stock in twenty-three different transactions. Accordingly, the
Indictment charges him with twenty-three counts of securities
fraud (collectively "the 10b-5 Counts"). Since confirmations
of the purchases were sent to Dr. Willis through the mails, he
is also charged with twenty-three counts of mail fraud
(collectively "the Mail Fraud Counts").
I. Misappropriation of Confidential Information as Securities
Fraud: The 10b-5 Counts*fn2
The novel facts of this Indictment make the securities fraud
issue one of first impression, but the theory of the
Indictment is not new. The Government is proceeding solely on
a "misappropriation" theory of liability for securities fraud
which is entirely different from the theory that was rejected
by the Supreme Court in Dirks v. SEC, 463 U.S. 646, 103 S.Ct.
3255, 77 L.Ed.2d 911 (1983). The "misappropriation" theory,
which has been developed by the Second Circuit, has been
recognized by the Supreme Court, but not yet approved by a
majority of that Court. See Chiarella v. United States,
445 U.S. 222, 235-37, 100 S.Ct. 1108, 1118-19, 63 L.Ed.2d 348
(1980); see also Carpenter v. United States, 484 U.S. 19, 108
S.Ct. 316, 98 L.Ed.2d 275 (1987) (convictions under the
securities laws affirmed without discussion by an evenly
The Indictment charges that Dr. Willis breached the
physician's traditional duty of confidentiality on which his
patient was entitled to rely when he misappropriated for his
personal profit material, non-public, business information
confided to him by his patient for her psychiatric diagnosis
and treatment, and that when Dr. Willis purchased BankAmerica
securities on the basis of his patient's confidential
information, he defrauded his patient in connection with the
purchase of securities in violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5.
Central to the sufficiency of the Indictment, and central to
the misappropriation theory of securities fraud, is a breach
of fiduciary or similar duty of trust and confidence. It is
difficult to imagine a relationship that requires a higher
degree of trust and confidence than the traditional
relationship of physician and patient. The "oath" of
Hippocrates, which has guided the practice of medicine for
more than 2,000 years, concludes with the following words:
Whatsoever things I see or hear concerning the
life of men, in my attendance on the sick or even
apart therefrom, which ought not be noised
abroad, I will keep silence thereon, counting
such things to be as sacred secrets.
15 The Encyclopedia Britannica 95a (1971). See also Hammonds v.
Aetna Casualty & Surety Co., 243 F. Supp. 793, 801 (N.D.Ohio
1965) ("Almost every member of the public is aware of the
promise of discretion contained in the Hippocratic oath, and
every patient has a right to rely upon this warranty of