Appeal from the United States District Courtfor the Central District of CaliforniaHarry L. Hupp, District Judge, PresidingArgued and SubmittedJune 3, 1998--Pasadena, CaliforniaFiled August 25, 1998Before: Diarmuid F. O'Scannlain, Stephen S. Trott, andFerdinand F. Fernandez, Circuit Judges.Opinion by Judge O'Scannlain
_____________________________COUNSEL Brian A. Sun, O'Neill, Lysaght & Sun, Santa Monica, Cali-fornia, for the defendant-appellant.David Z. Seide, Assistant United States Attorney, Los Ange-les, California, for the plaintiff-appellee.Susan K. Strauss, Securities and Exchange Commission,Washington, D.C., for the amicus.
_____________________________OPINION O'SCANNLAIN, Circuit Judge:In this appeal from an insider securities trading conviction,we must decide difficult evidentiary issues involving an ille-gal interception of voicemail, as well as whether internal cor-porate earnings projections may constitute "material" insideinformation and whether conviction requires proof of actualuse of that inside information.IPDA Engineering, Inc. ("PDA") was, in 1993, a softwaredesign firm with headquarters in Orange County, California.Shares in PDA were publicly traded on the National Associa-tion of Securities Dealers Exchange (commonly referred to as"NASDAQ"). Richard Smith served as PDA's Vice Presidentfor North American Sales and worked in PDA's Nashville,Tennessee, office. By early 1993, after nearly three years withPDA, Smith had accumulated 51,445 shares of PDA stock.In a series of transactions between June 10 and June 18,1993, Smith liquidated his entire position in PDA. In additionto selling his own shares, Smith "sold short" 1 25,000 shareson July 8, and another 10,000 shares on July 20. Smith's par-ents also sold and sold short a total of 12,000 shares.Amidst this flurry of sales activity, on June 19, Smith tele-phoned Angela Bravo de Rueda ("Bravo"), an employee inthe Los Angeles office of PDA, and left her the followingvoicemail message: Hi, Angie, Rich. . . . I talked to Tom last night after I left you some messages and he and Lou discovered that there was about a million and a half dollar mis- take in the budget, so now we're back at ground zero and we've got to scramble for the next few days. Anyway, finally I sold all my stock off on Friday and I'm going to short the stock because I know its going to go down a couple of points here in the next week as soon as Lou releases the information about next year's earnings. I'm more concerned about this year's earnings actually.2Unbeknownst to either Smith or Bravo, another LosAngeles-based PDA employee, Linda Alexander-Gore("Gore"), guessed correctly Bravo's voicemail password andaccessed Bravo's mailbox. When Gore encountered Smith'smessage, she forwarded it to her own mailbox. In order toretrieve it, she then called her own voicemail from her hometelephone, played the message, and recorded it with a hand-held audiotape recorder.3 After recording the message, Goreapproached a co-worker, Robert Phillips ("Phillips"). Sheinformed him of the general nature of the communication andprovided him with a copy of the recording.Phillips listened to the message and telephoned the UnitedStates Attorney's Office for the Central District of California,where he spoke to Assistant United States Attorney Bart Wil-liams ("Williams"). Phillips told Williams that he believed hehad information, in the form of an audiotape, that indicatedpossible criminal activity. He played the tape for Williamsapproximately four times and attempted to answer severalquestions about the contents of the recording. He informedWilliams that he believed that the speaker on the tape wasSmith and that the references in the message to "Tom" and"Lou" were probably to Tom Curry and Lou Delmonico, bothcorporate officers at PDA. Phillips offered to send Williamsa copy of the tape itself, but Williams declined. Phillips neverspoke to Williams again.Williams referred the matter to Special Agent Maura Kelly("Kelly") of the Federal Bureau of Investigation ("FBI").Kelly contacted the Pacific Regional Office of the Securitiesand Exchange Commission ("SEC") and relayed to a staffattorney that an "anonymous informant had told[Williams]about insider trading in the stock of a company called PDAEngineering by a person named Richard Smith and that theanonymous informant had a tape of a conversation involvingan individual purporting to be Smith discussing insidertrading." In November 1993, the SEC issued a formal orderof investigation against Smith. Over the course of the ensuingeight months, the SEC obtained documentary evidence fromvarious sources and deposed a number of witnesses. Some-time during the seventh month of its eight-month investiga-tion (in July 1994), the SEC obtained via administrativesubpoena an audiotape copy of the recorded voicemail mes-sage.In September 1994, the SEC referred the matter back to theUnited States Attorney in Los Angeles for possible criminalprosecution. Throughout the next eighteen months, the UnitedStates Attorney's Office and the FBI conducted substantialadditional investigation, during which they interviewed fif-teen individuals and subpoenaed sixteen additional boxes ofdocuments.Smith was indicted on eleven counts of insider trading inviolation of S 10(b) of the Securities Exchange Act of 1934,15 U.S.C. S 78j(b), and SEC Rule 10b-5, 17 C.F.R.S 240.10b-5, and on one count of obstruction of justice in vio-lation of 18 U.S.C. S 1505. Smith moved to suppress the evi-dence supporting the eleven insider trading counts and todismiss the indictment as a whole, including the obstruction-of-justice count. After an extensive hearing, the district courtsuppressed the voicemail message itself, but refused toexclude the remainder of the government's evidence, conclud-ing that it was not "derived from" the initial illegal recording.Although the court granted Smith's motion to dismiss theobstruction count,4 it denied his motion to dismiss withrespect to the insider trading counts.After a week-long trial, a jury returned guilty verdicts onall eleven insider trading counts. Smith filed a motion forjudgment of acquittal or, in the alternative, for a new trial.The district court denied the motion, and Smith appealed.Smith's contentions on appeal are essentially these: (1) thatthe government's evidence of insider trading was "derivedfrom" an illegal wiretap and, therefore, should have beenexcluded pursuant to 18 U.S.C. S 2515; (2) that the informa-tion he possessed was forward-looking, or "soft, " information,and hence was not "material" within the meaning of Rule10b-5; and (3) that the district court erroneously instructed thejury that it could convict Smith based upon his mere posses-sion, as opposed to his use, of inside information.IIPrior to trial, the district court suppressed the tape of thevoicemail message because it concluded that the tape hadbeen illegally "intercepted" within the meaning of 18 U.S.C.S 2515. The court refused, however, to exclude the remainderof the government's evidence. Smith contends on appeal thatall evidence produced by the government at trial should havebeen suppressed because it was "derived from" an illegalwiretap in violation of S 2515. The government counters ontwo fronts. In addition to its argument that the district courtcorrectly rejected Smith's "derived from" argument, see infraPart II.B, the government maintains (as an alternative basisfor affirmance5) that the district court erred in concluding thatS 2515 governs this case in the first place. The governmentcontends that a separate section of Title 18 --S 2701 --applies to situations like the one presented here and thus con-trols the evidentiary question. Because the government'salternative argument presents a threshold issue, we address itfirst.AWhen the Fifth Circuit observed that the Wiretap Act "isfamous (if not infamous) for its lack of clarity, " Steve JacksonGames, Inc. v. United States Secret Service, 36 F.3d 457, 462(5th Cir. 1994), it might have put the matter too mildly.Indeed, the intersection of the Wiretap Act (18 U.S.C.SS 2510-2520) and the Stored Communications Act (18U.S.C. SS 2701-2710) is a complex, often convoluted, area ofthe law. This case turns, at least in part, on issues at the veryheart of that intersection.Smith insists that the Wiretap Act controls. The districtcourt agreed. Section 2515 provides, in relevant part, that"[w]henever any wire . . . communication has beenintercepted, no part of the contents of such communicationand no evidence derived therefrom may be received in evi-dence in any trial." 18 U.S.C. S 2515 (emphasis added). Sec-tion 2510(1) defines "wire communication" as "any auraltransfer made in whole or in part through the use of facilitiesfor the transmission of communications by the aid of wire,cable, or other like connection" and expressly includes withinits scope "any electronic storage of such communication." 18U.S.C. S 2510(1) (emphasis added).6 Section 2510(4) defines"intercept" as "the aural or other acquisition of the contentsof any wire . . . communication through the use of any elec-tronic, mechanical, or other device." 18 U.S.C.S 2510(4).In view of the rather broad definitions supplied inS 2510,Smith argues, the voicemail message Gore retrieved fromBravo's mailbox seems rather plainly to fit within the lan-guage of the exclusionary provision of S 2515. For starters,the message itself, which Smith left in the voicemail systemvia telephone, was a "wire communication"; it was an "auraltransfer," made using a wire facility (the telephone line), andwas subsequently "electronic[ally] stor[ed]" within the voice-mail system. In addition, Gore's act of recording the messagewith a handheld audiotape-recording "device" constituted an"aural or other acquisition"7 -- and, hence, an "interception"-- of the message. It is clear, Smith insists, that S 2515applies. The government's response: Not so fast.Section 2701, which is part of the Stored CommunicationsAct, provides for the criminal punishment of anyone who"intentionally accesses without authorization a facilitythrough which an electronic communication service is pro-vided . . . and thereby obtains . . . access to a wire . . . commu-nication while it is in storage in such system." 18 U.S.C.S 2701. There is no doubt that the voicemail message at issueis a "wire communication."8 We have also already observedthat the message was in "storage" within PDA's voicemailsystem. When Gore used Bravo's password to dial into thevoicemail system, and then retrieved and recorded Smith'smessage, the government argues, she violated S 2701's prohi-bition on "access[ing]" stored wired communications. Conse-quently, the government argues, the voicemail message fitswithin S 2701.The fact that S 2701, as well as S 2515, appears to apply tothe voicemail message is significant, the government argues,because, unlike the Wiretap Act, the Stored CommunicationsAct does not provide an exclusion remedy. It allows for civildamages, see 18 U.S.C. S 2707, and criminal punishment, see18 U.S.C. S 2701(b), but nothing more. Indeed, the StoredCommunications Act expressly rules out exclusion as a rem-edy; S 2708, entitled "Exclusivity of Remedies," states specif-ically that S 2707's civil cause of action andS 2701(b)'scriminal penalties "are the only judicial remedies and sanc-tions for violations of" the Stored Communications Act. 18U.S.C. S 2708 (emphasis added). Therein lies the rub. If thevoicemail message at issue is subject to the strictures of theStored Communications Act, then suppression is not an avail-able remedy. If, however, it is subject to the Wiretap Act, thensuppression is quite explicitly available. In other words, withrespect to this case, the Wiretap Act and the Stored Commu-nications Act appear, on their faces, to be mutually exclusivestatutes (with mutually exclusive remedial schemes). Unfortu-nately, at least at first glance, Congress seems to have defiedthe laws of semantics and managed to make the voicemailmessage here at issue simultaneously subject to both.91In an effort to alleviate the apparent textual tension, thegovernment endeavors to take the voicemail message at issueoutside the scope of S 2515 by narrowly interpreting the word"intercept." Citing a handful of decisions -- most promi-nently United States v. Turk, 526 F.2d 654 (5th Cir. 1976) --the government insists that the term "intercept[ion]" in S 2515necessarily connotes contemporaneity; that is, it "mean[s] lis-tening to a conversation as it is taking place." In Turk, theFifth Circuit held that the word "intercept" does not include"the replaying of a previously recorded conversation." Turk,526 F.2d at 658. Rather, it "require[s] participation by the onecharged with an `interception' in the contemporaneous acqui-sition of the communication through the use of the device."Id. Consequently, according to the government, there exists afairly distinct division of regulatory labor, with the WiretapAct governing the retrieval of wire communications while inprogress and the Stored Communications Act governing theretrieval of wire communications while in storage.10 Thiscase, the government maintains, is within the latter category,not the former.[1] The government's explanation encounters problems,however. Most significantly, although the government's pro-posed definition of "intercept" might comport with the term'sordinary meaning -- "to take, seize or stop by the way orbefore arrival at the destined place," see, e.g., Webster'sThird New International Dictionary 1176 (1986) (emphasisadded) -- in this case, ordinary meaning does not control.When, as here, the meaning of a word is clearly explained ina statute, courts are not at liberty to look beyond the statutorydefinition. See Colautti v. Franklin,
439 U.S. 379, 393
(1979)("As a rule, `[a] definition which declares what a term"means" . . . excludes any meaning that is not stated.' " (quot-ing 2A C. Sands, Statutes and Statutory ConstructionS 47.07(4th ed. Supp. 1978))); cf. Perrin v. United States, 444 U.S.37, 42 (1979) ("A fundamental canon of statutory construc-tion is that, unless otherwise defined, words will be inter-preted as taking their ordinary, contemporary, commonmeaning." (emphasis added)). And as the Turk court itselffrankly acknowledged, "[n]o explicit limitation of coverage tocontemporaneous `acquisitions' appears in the Act." Turk,526 F.2d at 658.The government cites a slew of cases that it claims supportsits narrow definition of "intercept" as requiring contempora-neity. The lion's share of those cases, however, concern elec-tronic communications, not wire communications. See SteveJackson Games, 36 F.3d 457; Wesley College v. Pitts, 975 F.Supp. 375 (D. Del. 1997); Bohach v. City of Reno, 932 F.Supp. 1232 (D. Nev. 1996); United States v. Reyes, 922 F.Supp. 818 (S.D.N.Y. 1996). The distinction is critical,because unlike the definition of "wire communication," see18 U.S.C. S 2510(1), the definition of "electroniccommunication" does not specifically include stored informa-tion. Rather, the statute defines "electronic communication"simply as the "transfer of signs, signals, writing, images,sounds, data, or intelligence." 18 U.S.C. S 2510(12) (empha-sis added). Consequently, in cases concerning "electroniccommunication[s]" -- the definition of which specificallyincludes "transfer[s]" and specifically excludes "storage" --the "narrow" definition of "intercept" fits like a glove; it isnatural to except non-contemporaneous retrievals from thescope of the Wiretap Act. In fact, a number of courts adoptingthe narrow interpretation of "interception" have specificallypremised their decisions to do so on the distinction betweenS 2510's definitions of wire and electronic communications.As the Fifth Circuit put the matter in Steve Jackson Games,an electronic-communications case: Congress' use of the word "transfer" in the definition of "electronic communication," and its omission in that definition of the phrase "any electronic storage of such communication" (part of the definition of "wire communication") reflects that Congress did not intend for "intercept" to apply to "electronic communications" when those communications are in "electronic storage."Steve Jackson Games, 36 F.3d at 461-62; accord Wesley Col-lege, 974 F. Supp. at 386.; Bohach, 932 F. Supp. at 1235-36;Reyes, 922 F. Supp. at 836 & n.19.11 In a case involving wire communications, like this one, thenarrow definition of "intercept" is much harder to swallow. If,as the government insists, the term "intercept " necessarilyimplies contemporaneous acquisition, then the portion ofS 2510(1) that specifically explains "wire communication" asincluding stored information is rendered essentially meaning-less because messages in electronic storage cannot, by defini-tion, be acquired contemporaneously.12 We cannot acceptsuch an interpretation, which flies in the face of "the cardinalrule of statutory interpretation that no provision[of a statute]should be construed to be entirely redundant." Kungys v.United States,
485 U.S. 759, 778
(1988); see also Colautti,
439 U.S. at 392
("[It is an] elementary canon of statutory con-struction that a statute should be interpreted so as not to ren-der one part inoperative."). Rather, "[i]t is our duty `to giveeffect, if possible, to every clause and word of a statute.' "United States v. Menasche,
348 U.S. 528, 538
-39 (1955)(quoting Montclair v. Ramsdell,
107 U.S. 147
, 152 (1883)).Consequently, we conclude that the government's attempt todivide the statutory provisions cleanly between those concern-ing in-progress wire communications (e.g., S 2515) and thoseconcerning in-storage wire communications (e.g., S 2701) isnot a viable one.2[2] It is not necessary, as the government assumes, eitherto rewrite or to ignore congressionally approved language tomake sense of the Stored Communications Act and the Wire-tap Act. Rather, the two statutes "admit[ ] a reasonable con-struction which gives effect to all of [their ] provisions."Jarecki v. G.D. Searle & Co.,
367 U.S. 303, 307
(1961). Theterms "intercept" and "access" are not, as the governmentclaims, temporally different, with the former, but not the lat-ter, requiring contemporaneity; rather, the terms are conceptu-ally, or qualitatively, different. The word "intercept" entailsactually acquiring the contents of a communication, whereasthe word "access" merely involves being in position toacquire the contents of a communication. In other words,"access[ ]" is, for all intents and purposes, a lesser includedoffense (or tort, as the case may be) of "intercept[ion]." Asapplied to the facts of this case, Gore might have violated theStored Communications Act's prohibition on "access[ing]" bysimply making unauthorized use of Bravo's voicemail pass-word and roaming about PDA's automated voicemail system,even had she never recorded or otherwise "intercepted" thecontents of any given message. Once she retrieved andrecorded Smith's message, however, she crossed the linebetween the Stored Communications Act and the Wiretap Actand violated the latter's prohibition on "intercept[ion]."Both textual and structural considerations support our inter-pretation. First, our construction comports with the statutorydefinition of "intercept" as entailing actual "acquisition," see18 U.S.C. S 2510(4), and with the ordinary meaning of"access[ ]" (which is not statutorily defined) as meaning "toget at" or to "gain access to," see Webster's Ninth New Colle-giate Dictionary 49 (1986).13 Second, whereas the language ofS 2701 refers broadly to accessing a communications"facility," S 2515 refers more pointedly to intercepting the"wire . . . communication" itself.14 One assuredly can accessa communications facility -- such as a company voicemailsystem -- without listening to or recording any of the mes-sages stored within that facility. Third, our reading of the Actsexplains their contrasting penalty schemes. If, for instance, ahypothetical hacker were merely to "access[ ]" a communica-tion facility (i.e., put himself in position to acquire a wirecommunication), he could be either sued for civil damagesunder S 2707 or criminally prosecuted underS 2701(b), whichprovides for incarceration for a period of up to two years. If,however, he were to go further, and actually to "intercept[ ]"(i.e., acquire) a wire communication, he may be sued for civildamages under S 2520 or criminally prosecuted under S 2511,which provides for incarceration for a period of up to fiveyears. The fact that criminal violations of the Wiretap Act arepunished more severely than those of the Stored Communica-tions Act reflects Congress's considered judgment regardingthe relative culpability that attaches to violations of those pro-visions and supports our conclusion that a violation of the lat-ter is, conceptually, a "lesser included offense " of the former.Fourth, our construction explains the absence of an exclusionremedy among the Stored Communications Act's provisions.Obviously, the act of merely "access[ing] " a communicationsfacility would not alone produce the contents of any wirecommunication that might be suppressed; hence, an exclusionprovision in the Stored Communications Act is unnecessary.The actual "intercept[ion]" of a wire communication, how-ever, could yield suppressible evidence; hence, pursuant toS 2515, the contents of any such communication illegallyintercepted may not be introduced in any official proceeding.Finally, and perhaps most importantly, our interpretation per-mits the Wiretap Act and the Stored Communications Act tocoexist peacefully; that is, it prevents us from having simplyto ignore a congressional enactment or a portion thereof. SeeUnited Savings Ass'n v. Timbers of Inwood Forest, 484 U.S.365, 371 (1988) ("Statutory construction . . . is a holisticendeavor.").3[3] We thus reject the government's interpretation in favorof what we believe to be a more holistically sound approachto this confusing area of the law. Pursuant to that approach,we conclude that Gore's act of retrieving and recordingSmith's voicemail message constituted an "intercept[ion],"and is therefore governed, not by the Stored CommunicationsAct but, instead, by the Wiretap Act and the exclusionary ruleof S 2515. Consequently, we conclude that the district courtwas correct to suppress the tape of the voicemail message.B[4] Section 2515 requires the suppression of not only theillegally intercepted wire communication itself, but also any"evidence derived therefrom."15 Smith insists that the entiretyof the government's case against him was "derived from" theunlawful wiretap and should therefore have been excludedfrom evidence. We have long recognized that S 2515"codifies the `fruits of the poisonous tree' doctrine withrespect to violations that trigger application of the section."United States v. Spagnuolo, 549 F.2d 705, 711 (9th Cir.1977). Consequently, we must look to Fourth Amendmentsearch-and-seizure jurisprudence to determine the meaningand application of the statutory phrase "evidence derivedtherefrom." See Chandler v. United States, 125 F.3d 1296,1304 (9th Cir. 1997).In Wong Sun v. United States,
371 U.S. 471
(1963), theSupreme Court articulated the basic standard for analyzing"fruit of the poisonous tree" issues: "The . . . question in sucha case is `whether, granting establishment of the primary ille-gality, the evidence to which instant objection is made hasbeen come at by exploitation of that illegality or instead bymeans sufficiently distinguishable to be purged of the primarytaint.' " Id. at 488 (quoting John McArthur Maguire, Evidenceof Guilt 221 (1959)). The Court has fashioned three distinctexceptions to the "fruits" exclusionary rule: (1) the"independent source" exception; (2) the "inevitablediscovery" exception; and (3) the "attenuated basis" excep-tion. See United States v. Ramirez-Sandoval, 872 F.2d 1392,1396 (9th Cir. 1989). We concern ourselves today only withthe third of those three.16[5] The "attenuated basis" exception is, at bottom, the man-ifestation of the courts' consistent rejection of a "but for" cau-sation standard in "fruit of the poisonous tree " doctrine. Asthe Supreme Court put the matter in United States v. Cec-colini,
435 U.S. 268
(1978): Even in situations where the exclusionary rule is plainly applicable, we have declined to adopt a "per se or `but for' rule" that would make inadmissible any evidence, whether tangible or live-witness testi- mony, which somehow came to light through a chain of causation that began with an illegal arrest.Id. at 276 (citing Brown v. Illinois,
422 U.S. 590, 603
(1975));accord United States v. Cales, 493 F.2d 1215, 1215 (9th Cir.1974) ("Evidence need not be suppressed merely because itwould not have come to light but for the illegal wiretap.").Rather, the taint inquiry is more akin to a proximate causationanalysis. That is, at some point, even in the event of a directand unbroken causal chain, the relationship between theunlawful search or seizure and the challenged evidencebecomes sufficiently weak to dissipate any taint resultingfrom the original illegality. See Nardone v. United States, 308U.S. 338, 341 (1939). In other words, at some point along theline, evidence might be "fruit," yet nonetheless be admissiblebecause it is no longer "tainted" or "poisonous." Of course,the line between "taint" and "attenuation " is not an easy oneto draw. As a leading treatise observes, "there is not now anddoubtless never will be any litmus-paper test for determiningwhen there is only an `attenuated connection' between aFourth Amendment violation and certain derivativeevidence." 5 Wayne R. LaFave, Search and Seizure: A Trea-tise on the Fourth Amendment S 11.4(a), at 236 (3d ed. 1996).Rather, "the question of attenuation inevitably is largely amatter of degree." Brown,
422 U.S. at 609
(Powell, J., concur-ring). Whether derivative evidence is admitted or excluded"will depend upon the precise role the illegal seizure in factplayed in the subsequent discovery." United States v. Bacall,443 F.2d 1050, 1057 (9th Cir. 1971).In arguing for suppression, Smith advocates an "impetus"test for determining taint. He points to the district court's"factual finding" that "it's fairly obvious that the interceptedmessage was the impetus for starting the investigation," andargues that "[b]ecause the district court's finding . . . was notclearly erroneous, the evidence obtained in the subsequentinvestigation of Smith should have been suppressed. " Smithrelies upon this court's decision in United States v. Johns, 891F.2d 243 (9th Cir. 1989), in support of his proposed"impetus" standard. His reliance, however, is misplaced.Although there is loose language in the Johns opinion to theeffect that "[t]he illegal stop was the impetus for the chain ofevents leading to the [incriminating evidence ] and thus [was]too closely and inextricably linked to the discovery for thetaint to have dissipated," id. at 245-46, the statement is clearlydictum. The Johns court premised its holding upon a muchnarrower ground, namely upon the district court's "expressfinding" that the investigation occurred as a "direct result" ofan initial illegal identification. See id. at 245. What is more,prior to Johns, in United States v. Cella, 568 F.2d 1266 (9thCir. 1978), we had specifically rejected "impetus " as thelinchpin of taint analysis. The defendants in Cella had con-tended that, if unlawfully seized information "gives an impe-tus or direction toward what is to be focused on by thegovernment, then all evidence thereafter produced must besuppressed." Id. at 1285. Our response was decisive: "Thedefendants' position is not consistent with the law of thiscircuit." Id. Indeed, as the government correctly points out inits brief, an "impetus" standard is functionally equivalent toa "but for" test for evaluating taint, a test that both theSupreme Court and this court have repeatedly renounced. See,e.g., Ceccolini,
435 U.S. at 276
; Wong Sun,
371 U.S. at 487
-88; Chandler, 125 F.3d at 1295; Cales, 493 F.2d at 1215.We likewise decline Smith's invitation to couch the taintinquiry in terms of "links in [a] causal chain" leading toincriminating evidence. The question of taint simply "cannotbe answered on the basis of `causation in the logical sensealone.' " See United States v. Carsello, 578 F.2d 199, 202 (7thCir. 1978). As the Supreme Court has recognized,"[s]ophisticated argument may prove a causal connectionbetween information obtained through illicit wire-tapping andthe Government's proof. As a matter of good sense, however,such connection may have become so attenuated as to dissi-pate the taint." Nardone,
308 U.S. at 341
. As is Smith's pro-posed "impetus" standard, a "logical causation" standard istantamount to a "but for" test, and we therefore reject it.[6] Contrary to Smith's suggestions, under Ninth Circuitprecedent, the baseline inquiry in evaluating taint is notwhether an unlawful search was the "impetus" for the investi-gation or whether there exists an unbroken "causal chain"between the search and the incriminating evidence; rather,courts must determine whether "anything seized illegally, orany leads gained from illegal activity, tend[ed ] significantly todirect the investigation toward the specific evidence sought tobe suppressed." Cales, 493 F.2d at 1216 (emphasis added).And although it is by no means clear precisely what consti-tutes "significant direction" sufficient to trigger the exclusionremedy, courts have deemed it probative whether the initialillegality "led directly to any of the evidence actually usedagainst the defendant at trial," Carsello, 578 F.2d at 203(emphasis added), or, to put the matter slightly differently,whether the government's evidence was the "direct result" ofan unlawful search or seizure, Johns, 891 F.2d at 245. On theother hand, it is not sufficient in demonstrating taint that anunlawful wiretap "may have been a factor in the decision to`target' " a specific defendant, Cales, 493 F.2d at 1216, orthat an illegal search uncovers the alleged perpetrator's iden-tity, and therefore "directs attention to a particular suspect,"Hoonsilapa v. INS, 575 F.2d 735, 738 (9th Cir. 1978). Thenexus between the original illegality and the specific evidencesubject to challenge must be a close one.The standard for suppression under the "attenuated basis"exception is slightly different when the evidence sought to besuppressed is testimonial, rather than documentary. Courtsrequire "a closer, more direct link between the illegality and[live-witness] testimony" than they demand for the exclusionof documentary evidence. Ceccolini,
435 U.S. at 278
. In otherwords, "the exclusionary rule should be invoked with muchgreater reluctance where the claim is based on a causal rela-tionship between a constitutional violation and the discoveryof a live witness than when a similar claim is advanced tosupport suppression of an inanimate object." Id. at 280. Wehave held that the appropriate inquiry when dealing with livewitnesses is whether "[t]hey testified without coercion" andwhether "the fruits of the search . . . induce[d] theirtestimony." United States v. Kandik, 633 F.2d 1334, 1336 (9thCir. 1980).[7] With these principles in mind, we turn to the disputedevidence in this case. To recap, the voicemail message, whichthe district court concluded had been illegally "intercepted,"stated, in relevant part: Hi, Angie, Rich. . . . I talked to Tom last night after I left you some messages and he and Lou discovered that there was about a million and a half dollar mis- take in the budget, so now we're back at ground zero and we've got to scramble for the next few days. Anyway, finally I sold all my stock off on Friday and I'm going to short the stock because I know its going to go down a couple of points here in the next week as soon as Lou releases the information about next year's earnings. I'm more concerned about this year's earnings actually.Significantly, the text of the voicemail message itself actuallyreveals very little about the crime; it discloses only (1) theexistence of insider trading, (2) the first name of the suspectedinside trader, (3) the fact that the inside trader had sold stockrecently and would sell short in the near future, and (4) theexistence, but not the significance, of two individuals named"Tom" and "Lou." More significantly, the SEC did not evenobtain an actual copy of the message until July 1994, after itsinvestigation was well underway. Hence, the information con-tained in the recording did not itself even directly trigger theSEC's investigation; rather, the spark for the probe was thethird-hand description of the tape the SEC received from Spe-cial Agent Kelly of the FBI. Recall that Kelly had informedthe SEC that [an] anonymous informant had told [Assistant United States Attorney Williams] about insider trad- ing in the stock of a company called PDA Engineer- ing by a person named Richard Smith and that the anonymous informant had a tape of a conversation involving an individual purporting to be Smith dis- cussing insider trading.Consequently, it is not the information that one might poten-tially glean from the message itself that is most relevant to thequestion of taint; rather, it is the information about the mes-sage that the SEC actually learned from Agent Kelly.[8] From Kelly, the SEC learned even less than it mighthave ascertained from the message itself: (1) the probablename of the suspected inside trader; (2) the name of companyin whose stock he traded; and (3) the existence of potentialcriminal activity.17 What the SEC did not learn from Kelly ismore telling: (1) the identities of any of PDA's corporate offi-cers, including Lou Delmonico or Thomas Curry; (2) thenature of the information to which Smith was privy andwhether it was "material" within the meaning of the securitieslaws; (3) Smith's position at PDA and whether his positiongave rise to a duty to disclose nonpublic information; (4)whether Smith possessed the requisite mens rea to support aninsider trading conviction; (5) the identity of the stockbrokerwho consummated Smith's trades; (6) whether Smith had fol-lowed or ignored his broker's advice in shorting his PDAstock; (7) the fact that Smith's parents had engaged in suspi-cious trades; and (8) the identity of Smith's parents' stockbro-ker. The SEC had to discover all of these facts on its ownaccord through independent investigation. Over the course ofeight months, the SEC obtained documentary evidence froma number of sources (including PDA, NASDAQ, and severalbrokerage firms) and interviewed a bevy of witnesses (includ-ing, among others, Smith himself, Bravo, Gore, Phillips,Smith's stockbroker, Smith's parents and their stockbroker,and PDA's chief financial officer and chief operating officer).[9] There is no reason to believe that the relatively meageramount of information provided to the SEC by Agent Kelly"led directly to any of the evidence actually used against thedefendant at trial," Carsello, 578 F.2d at 203 (emphasisadded), or otherwise "significantly directed" the governmenttoward the evidence it ultimately obtained, see Cales, 493F.2d at 1216. Nor is there any indication whatsoever in therecord that any of the government's witnesses were "coerced"or their testimony "induced" by the existence of the tape. SeeKandik, 633 F.2d at 1336. Indeed, the majority of the govern-ment's witnesses had been interviewed before the SEC evensubpoenaed a copy of the tape. At most, Agent Kelly's third-hand description of the voicemail message tipped off the gov-ernment to the fact that a crime had been committed and tothe probable identity of the perpetrator. It was, in the wordsof the district court, a "lead." A lead, however, is simply notenough to taint an entire investigation. See Hoonsilapa, 575F.2d at 738; Cales, 493 F.2d at 1216.[10] Because the nexus between the intercepted voicemailmessage and the lion's share of the evidence independentlygleaned from the SEC's investigation (which the UnitedStates Attorney and the FBI subsequently inherited) is suffi-ciently attenuated, we affirm the district court's decision inso-far as it concludes that the government's evidence was not"derived from" the unlawful wiretap within the meaning of 18U.S.C. S 2515.18III[11] Section 10(b) of the Securities Exchange Act of 1934makes it unlawful for any person "[t]o use or employ, in con-nection with the purchase or sale of any security registered ona national securities exchange or any security not so regis-tered, any manipulative or deceptive device or contrivance incontravention of such rules and regulations as the[SEC] mayprescribe." 15 U.S.C. S 78j(b). To implement S 10(b), in1942, the SEC adopted Rule 10b-5, which provides, in rele-vant part: It shall be unlawful for any person, directly or indi- rectly . . ., (a) [t]o employ any device, scheme, or artifice to defraud, (b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the cir- cumstances under which they were made, not mis- leading, or (c) to engage in any act, practice, or course of busi- ness which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any secur- ity.17 C.F.R. S 240.10b-5. A violation of Rule 10b-5 comprisesfour elements: a (1) misleading (2) statement or omission (3)of a "material" fact (4) made with scienter. See SEC v. Fehn,97 F.3d 1276, 1289 (9th Cir. 1996). Under the "classicaltheory" of insider trading liability,19 a violation of Rule 10b-5 occurs "when a corporate insider trades in the securities ofhis corporation on the basis of material, nonpublicinformation." United States v. O'Hagan, 117 S. Ct. 2199,2207 (1997); accord SEC v. Clark, 915 F.2d 439, 443 (9thCir. 1990) ("[A] person violates Rule 10b-5 by buying or sell-ing securities on the basis of material nonpublic informationif . . . he is an insider of the corporation in whose shares hetrades." (quoting Barbara Bader Aldave, Misappropriation: AGeneral Theory of Liability for Trading on Nonpublic Infor-mation, 13 Hofstra L. Rev. 101, 101-02 (1984)).Smith contends that the information upon which he tradedconsisted of "forecasts of future sales and revenue." This"soft," forward-looking information, he insists, cannot, as amatter of law, constitute "material" information within themeaning of Rule 10b-5 and, consequently, cannot give rise toinsider trading liability. Smith complains that the district courtemployed an erroneous understanding of materiality (i.e., asincluding "soft" information) when it refused to dismiss theindictment, denied his motions for judgment of acquittal andnew trial, and instructed the jury. He urges reversal on allthree grounds.[12] In Basic, Inc. v. Levinson,
485 U.S. 224
(1988), theSupreme Court adopted for S 10(b) and Rule 10b-5 the stan-dard of materiality it had earlier articulated in the context ofS 14(a): Materiality "depends on the significance the reason-able investor would place on the withheld or misrepresentedinformation." Id. at 240. In other words, in order to be mate-rial, "there must be a substantial likelihood that the disclosureof the omitted fact would have been viewed by the reasonableinvestor as having altered the `total mix' of information madeavailable." Id. at 231-32 (quoting TSC Industries, Inc. v.Northway, Inc.,
426 U.S. 438
(1976)); see also SEC v. TexasGulf Sulphur Co., 401 F.2d 833, 849 (2d Cir. 1968) (en banc)("The basic test for materiality . . . is whether a reasonableman would attach importance . . . in determining his choiceof action in the transaction in question."). Smith does not con-tend that the information he possessed falls outside the Basicdefinition of materiality -- that a reasonable investor wouldnot have considered it useful or significant.20 Rather, heargues that "[t]his Circuit has set limits on the type of infor-mation that may be considered material as a matter of law."Specifically, Smith says, "this Court has repeatedly held thatforecasts of future sales and revenue are too speculative toconstitute material facts." Smith contends that both the gov-ernment's indictment and its proof at trial centered on his pos-session of "soft" information in the form of quarterly revenueprojections. For instance, Smith points out, the indictmentalleged that Smith knew in April 1993 that PDA "actuallyexpected to realize" roughly 16% percent less in revenues forthe fiscal year's fourth quarter21 than it had projected (a short-fall of approximately $2.3 million), and that Smith knew inJune 1993 (in light of revised sales figures) that PDA"actually expected" to come up about 12% short. The govern-ment's evidence at trial, Smith maintains, mirrored the allega-tions in the indictment. Specifically, it elicited testimony fromSmith's supervisor that Smith knew, both in April and inJune, that PDA was not likely to meet fourth quarter revenueprojections. When Smith traded on the basis of his knowledgeof a fourth-quarter shortfall, the government's case went, heviolated S 10(b) and Rule 10b-5.22 [13] In support of his contention that "soft" informationcannot, as a matter of law, be "material" within the meaningof Rule 10b-5, Smith invokes a handful of Ninth Circuit cases-- In re Worlds of Wonder Securities Litigation, 35 F.3d 1407(9th Cir. 1994), In re Verifone Securities Litigation, 11 F.3d865 (9th Cir. 1993), In re Lyondell Petrochemical Co. Securi-ties Litigation, 984 F.2d 1050 (9th Cir. 1993), and In re Con-vergent Technologies Securities Litigation, 948 F.2d 507 (9thCir. 1991) -- and a recent First Circuit decision, Glassman v.Computervision Corp., 90 F.3d 617 (1st Cir. 1996). Thesecases, however, cannot bear the weight of the extreme inter-pretation with which Smith has saddled them. The decisionsSmith cites stand for a more modest proposition, namely, that,in the circumstances presented in those individual cases, thedisputed information was not sufficiently certain or signifi-cant to be considered material. We have never held -- noreven hinted -- that forward-looking information or intra-quarter data cannot, as a matter of law, be material. Nor hasany other court for that matter, at least to the best of ourknowledge. Indeed, both the Supreme Court's landmark deci-sion in Basic and preexisting Ninth Circuit authority confirmthat so-called "soft" information can, under the proper cir-cumstances, be "material" within the meaning of Rule 10b-5.In Basic -- the very case that announced the governing stan-dard for Rule 10b-5 materiality -- the Supreme Court dealtspecifically with preliminary merger negotiations, events itdubbed "contingent or speculative in nature." Id. at 232. Andalthough the Basic Court acknowledged that its decision didnot concern "earnings forecasts or projections " per se, id. at232 n.9, it expressly adopted a "fact-intensive inquiry" togovern the materiality of "contingent or speculative informa-tion or events," id. at 238-40. It held that, with respect toforward-looking information, materiality "will depend at anygiven time upon a balancing of both the indicated probabilitythat the event will occur and the anticipated magnitude of theevent in light of totality of the company activity. " Id. at 238(quoting Texas Gulf Sulphur, 401 F.2d at 849). The Court'sfact-specific approach fatally undermines Smith's claim thatforward-looking information cannot, as a matter of law, bematerial. Likewise, only recently, in Fehn, 97 F.3d 1276, wespecifically invoked the Basic standard for "determining themateriality of a corporate event that has not yet occurred." Id.at 1291. Even more to the point is Marx v. Computer SciencesCorp., 507 F.2d 485 (9th Cir. 1974), a case brought by dis-gruntled investors against a corporation under S 10(b) andRule 10b-5. There, we stated unambiguously: Nor can there be any doubt that the forecast of earnings was a "material" fact. The applicable test of materiality is essentially objective: ". . . whether `a reasonable man would attach importance (to the fact misrepresented) in determining his choice of action in the transaction in question.' " And generally earn- ings projections of a company constitute a prime fac- tor in estimating the worth of its stock, especially when made close to the end of the fiscal year.Id. at 489 (internal citations omitted). It is irrelevant that nei-ther Basic nor Fehn nor Marx involved insider trading. Thestandard for materiality is a constant (at least for Rule 10b-5purposes); it does not vary "depending on who brings theaction or whether insiders are alleged to have profited." Basic,
485 U.S. at 240
n.18; see also SEC v. Hoover, 903 F. Supp.1135, 1140 (S.D. Tex. 1995) ("The Supreme Court hasadopted a single standard for materiality in section 10(b) andRule 10b-5 actions, including those based on insider trading."(citing Basic,
485 U.S. at 231
)).[14] There is, quite simply, no case law to support Smith'sblanket assertion that forward-looking statements cannot, as amatter of law, constitute "material" information within themeaning of Rule 10b-5. Indeed, both the Supreme Court andthis court have held to the contrary and have observed thatdetermining materiality requires a nuanced, case-by-caseapproach. Consequently, we reject Smith's contentions thatthe district court erred (1) in refusing to dismiss the indict-ment, (2) in denying his motion for a judgment of acquittal,and (3) in instructing the jury based upon the Basic definitionof materiality.IVWith respect to Smith's state of mind, the district courtinstructed the jury as follows: In order for you to find the defendant guilty on [the insider trading counts] of the indictment, the government must prove a causal relationship between the material nonpublic information in the defendant's possession and the defendant's trading. That is, the government must prove that the defen- dant sold or sold short PDA stock because of mate- rial nonpublic information that he knowingly possessed. It is not sufficient that the government proves that the defendant sold or sold short PDA stock while knowingly in possession of the material nonpublic information. However, the government need not prove that the defendant sold or sold short PDA stock solely because of the material nonpublic information. It is enough if the government proves that such inside information was a significant factor in defendant's decision to sell or sell short PDA stock.Although he accedes in much of the instruction, Smith objectsto the final two sentences, arguing that they "confused thejury" by providing that the government need only demonstratethat the inside information was a "significant factor" in hisdecision to trade, and not "the reason." The government andthe SEC counter by arguing that, in fact, the district court'sinstruction "exceeded the requirements of existing law." Theyinsist that there is no "causation" element to an insider tradingprosecution. Rather, they contend, "[w]hen a corporate insiderlike Smith has information relating to his company that heknows (or is reckless in not knowing) to be material and non-public and he trades in the company's stock, he violates theantifraud provisions of the federal securities laws, whether ornot the information is a factor in his decision to trade." Inother words, the government contends, it needed only toprove that Smith knowingly possessed material nonpublicinformation, not that he actually used the information indeciding to buy or sell.AAlthough the use-possession debate has attracted a gooddeal of attention from academic commentators,23 very fewcourts (and none in this circuit) have addressed the issue headon. In support of their proposed "possession-only " standard,the government and the SEC rely principally upon dictumfrom a Second Circuit case, United States v. Teicher, 987 F.2d112, 119 (2d Cir. 1993). The court in Teicher suggested, with-out squarely deciding, that proof of "knowing possession" issufficient to sustain an insider trading prosecution and that thegovernment need not affirmatively prove that the investorused the information in formulating his trade. For support, thecourt pointed to "a number of factors." Id. at 120. First, itasserted that the SEC has "consistently endorsed " a knowing-possession standard, and that the agency's interpretation ofRule 10b-5 in that respect is "entitled to some consideration."Id. Second, the court found the less exacting knowing-possession standard to be more consistent with the languageof S 10(b) and Rule 10b-5, both of which require only that adeceptive trade practice be conducted "in connection with"the purchase or sale of a security. See id. Third, the courtobserved that a knowing-possession standard "comports withthe oft-quoted maxim that one with a fiduciary or similar dutyto hold material nonpublic information in confidence musteither `disclose or abstain' with regard to trading." Id.(quoting Chiarella v. United States,
445 U.S. 222
, 227(1980)). Finally, the Teicher court pointed to what it believedto be the probable, yet subtle (indeed perhaps unconscious),effect that inside information has on traders: Because the advantage [an inside trader has over other traders] is in the form of information, it exists in the mind of the trader. Unlike a loaded weapon which may stand ready but unused, material infor- mation can not lay idle in the human brain.Id. at 120-21.[15] Despite the Second Circuit's thoughtful analysis, webelieve that the weight of authority supports a "use" require-ment. Perhaps most significantly, the Supreme Court has con-sistently suggested, albeit in dictum, that Rule 10b-5 requiresthat the government prove causation in insider trading prose-cutions. Indeed, just last Term, in United States v. O'Hagan,117 S. Ct. 2199 (1997), the Court indicated that an insidertrading suspect must actually use the information to which heis privy, observing that "[u]nder the `traditional' or `classicaltheory' of insider trading liability, S 10(b) and Rule 10b-5 areviolated when a corporate insider trades in the securities of hiscorporation on the basis of material, nonpublic information."Id. at 2207 (emphasis added). The O'Hagan Court was evenmore explicit in a separate portion of the opinion:"[T]he fidu-ciary's fraud is consummated, not when the fiduciary gainsthe confidential information, but when, without disclosure tohis principal, he uses the information to purchase or sellsecurities." Id. at 2209 (emphasis added). The Court's earlierdecisions sound a similar theme. See, e.g., Dirks v. SEC, 463U.S. 646, 653 n.10 (1983) (referring to "duty that insidersowe . . . not to trade on inside information"); id. at 654 (refer-ring to "duty to disclose before trading on material nonpublicinformation"); id. at 658-59 (referring to "trad[ing] on" insideinformation); id. at 662 (observing that "a purpose of thesecurities laws was to eliminate `use of inside information forpersonal advantage.' " (quoting In re Cady, Roberts & Co., 40S.E.C. 907, 912 n.15 (1961)); Chiarella,
445 U.S. at 226
(referring to "the unfairness of allowing a corporate insider totake advantage of [inside] information by trading withoutdisclosure"); id. at 229 (observing that"[t]he federal courtshave found violations of S 10(b) where corporate insidersused undisclosed information for their own benefit").24In addition to suggestions from the Supreme Court, theonly court of appeals squarely to consider the causation issueconcluded that Rule 10b-5 does, in fact, entail a "use" require-ment. See SEC v. Adler, 137 F.3d 1325, 1337-39 (11th Cir.1998). In reaching its decision, the Eleventh Circuit pointedout that the SEC's position with regard to causation has notbeen nearly as "consistent" as the Second Circuit implied inTeicher; rather, it has "fluctuat[ed] over time." Id. at 1336.Although the SEC's current policy appears to be that "Rule10b-5 does not require a showing that an insider sold hissecurities for the purpose of taking advantage of material non-public information," In re Sterling Drug, Inc., Fed. Sec. L.Rep. (CCH) P 81,570, at 80,295 (April 18, 1978), such has notalways been the case. In fact, in the not-too-distant past, theSEC concluded that an essential element of an insider tradingviolation was that the inside information "be a factor in [theinsider's] decision to effect the transaction. " In re InvestorsManagement Co., Fed. Sec. L. Rep. (CCH) P 78,163, at80,514 (July 29, 1971). Of course, the fact that the SEC'sposition with respect to the causation issue has flip-flopped isnot fatal to its claim to deference. See NLRB v. Local UnionNo. 103,
434 U.S. 335, 351
(1978) ("An administrativeagency is not disqualified from changing its mind; and whenit does, the courts . . . should not approach the statutory con-struction issue de novo and without regard to the administra-tive understanding of the statutes."). Nor, however, is theagency's about-face irrelevant to our inquiry. See Skidmore v.Swift & Co.,
323 U.S. 134, 140
(1944) (listing "consistencywith earlier and later pronouncements" as a pertinent consid-eration in determining the persuasiveness of an agency rul-ing).[16] The Adler court also thought a "use" requirement moreconsistent with the language of S 10(b) and Rule 10b-5, whichemphasizes "manipulat[ion]," "decept[ion]," and "fraud." Weagree. By focusing exclusively upon the phrase "in connec-tion with," the Second Circuit, we think, lost sight of thelaw's main thrust. After all, S 10(b) and Rule 10b-5 do notjust prohibit certain unspecified acts "in connection with" thepurchase or sale of securities; rather, they prohibit theemployment of "manipulative" and "deceptive " trading prac-tices in connection with those transactions. This court hasexpressly held that "scienter" is a necessary element of aninsider trading violation, see SEC v. Fehn, 97 F.3d 1276, 1289(9th Cir. 1997), and has defined scienter as "a mental stateembracing intent to deceive, manipulate, or defraud,"Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1568 (9thCir. 1990) (quoting Ernst & Ernst v. Hochfelder, 425 U.S.185, 1993 (1976)). As the Supreme Court put the matter inDirks, "[i]t is not enough that an insider's conduct results inharm to investors; rather a violation [of Rule 10b-5] may befound only where there is `intentional or willful conductdesigned to deceive or defraud investors.' " Dirks, 463 U.S.at 663 n.23 (quoting Ernst & Ernst,
425 U.S. at 199
). Like ourcolleagues on the Eleventh Circuit, we are concerned that theSEC's "knowing possession" standard would not be --indeed, could not be -- strictly limited to those situationsactually involving intentional fraud.25 For instance, an inves-tor who has a preexisting plan to trade, and who carriesthrough with that plan after coming into possession of mate-rial nonpublic information, does not intend to defraud ordeceive; he simply intends to implement his pre-possessionfinancial strategy. The SEC suggests that the requisite intentto defraud is inherent in the act of trading while in possessionof inside information: A corporate insider who trades knowing that he has inside information not available to persons on the other sides of his trades knows that those persons, to whom he owes a fiduciary duty, are at a disadvan- tage and will be making their decisions on the basis of incomplete information.The SEC's position, however, rests upon a faulty premise.The persons with whom a hypothetical insider trades are notat a "disadvantage" at all provided the insider does not "use"the information to which he is privy. That is to say, if theinsider merely possesses and does not use, the two parties aretrading on a level playing field; if the insider merely possessesand does not use, both individuals are "making their decisionson the basis of incomplete information." It is the insider's use,not his possession, that gives rise to an informational advan-tage and the requisite intent to defraud.Moreover, with respect to our colleagues on the SecondCircuit, we do not believe that the "oft-quoted maxim" of"disclose or abstain," Teicher, 987 F.2d at 120 (citingChiarella,
445 U.S. at 227
), supports a knowing-possessionstandard. The trouble with "oft-quoted maxims, " of course, isthat they rarely, if ever, capture the complexity of the ideathat they are supposed to represent. "Disclose or abstain" isno exception. It was absolutely clear both in Chiarella, uponwhich the Teicher court relied for its "disclose or abstain"citation, and in Cady, Roberts, upon which Chiarella relied,that the suspected inside traders had, in fact, used inside infor-mation in consummating their trades. Indeed, in Cady, Rob-erts, the wellspring of the "disclose or abstain" principle, theSEC premised its decision, at least in part, on the propositionthat "[a] significant purpose of the Exchange Act was to elim-inate the idea that the use of inside information for personaladvantage was a normal emolument of corporate office."Cady, Roberts, 40 S.E.C. at 912 n.15 (emphasis added). Con-sequently, understood in its proper context, we believe thatthe latter half of the maxim "disclose or abstain" enjoins notall trading, but trading on the basis of material nonpublicinformation.We do not take lightly the SEC's argument that a "use"requirement poses difficulties of proof. In operation, the gov-ernment claims, the "use" requirement will "entail significantfactual inquiries into the state of mind and the motivations ofthe inside trader." In an attempt to alleviate those difficulties,the Adler court adopted a rule providing that, although "use"is a required element of a Rule 10b-5 insider trading violation,"when an insider trades while in possession of material non-public information, a strong inference arises that such infor-mation was used by the insider in trading." Adler, 137 F.3dat 1337. "The insider can attempt to rebut the inference byadducing evidence that there was no causal connectionbetween the information and the trade -- i.e., that the infor-mation was not used. The factfinder would then weigh all ofthe evidence and make a finding of fact as to whether theinside information was used." Id. Of course, we deal herewith a criminal prosecution, not a civil enforcement proceed-ing, as was the situation in Adler. We are therefore not at lib-erty, as was the Adler court, to establish an evidentiarypresumption that gives rise to an inference of use. See Sand-strom v. Montana,
442 U.S. 510, 524
(1979) ("A presumptionwhich, although not conclusive, had the effect of shifting theburden of persuasion to the defendant, would have sufferedfrom [constitutional] infirmities.").We nonetheless adhere to our view that Rule 10b-5 entailsa "use" requirement. We appreciate that a "use" requirementrenders criminal prosecutions marginally more difficult forthe government to prove. The difficulties, however, are by nomeans insuperable. It is certainly not necessary that the gov-ernment present a smoking gun in every insider trading prose-cution. (Not that a smoking gun will always be beyond thegovernment's reach; consider, for instance, that in this caseBravo might herself have gone to the authorities with Smith'sstatement that "I'm going to short the stock because I knowits going to go down a couple of points here in the next weekas soon as Lou releases the information about next yearsearnings.") Any number of types of circumstantial evidencemight be relevant to the causation issue. Suppose, forinstance, that an individual who has never before investedcomes into possession of material nonpublic information andthe very next day invests a significant sum of money in sub-stantially out-of-the-money call options.26 We are confidentthat the government would have little trouble demonstrating"use" in such a situation, or in other situations in whichunique trading patterns or unusually large trading quantitiessuggest that an investor had used inside information.[17] Consequently, we reject the government's proffered"knowing possession" standard for insider trading violationsas contrary the weight of existing authority. Rather, we holdthat Rule 10b-5 requires that the government (or the SEC, asthe case may be27) demonstrate that the suspected inside traderactually used material nonpublic information in consummat-ing his transaction.B[18] Smith contends that the district court's instructions inthis case were insufficient as a matter of law. Specifically, hecomplains that "a jury instruction which allows the govern-ment to obtain a conviction without proof that the defendanttraded in stock `because of the material nonpublic informa-tion' that he possessed, effectively wipes out the scienterrequirement as defined by this Court and the Supreme Court."As a legal matter, he is correct. The trouble for Smith lies notin the law but in the facts, because the district court in thiscase did require proof of causation. It specifically instructedthe jury that "the government must prove that the defendantsold or sold short PDA stock because of material nonpublicinformation that he knowingly possessed" and cautioned that"[i]t is not sufficient that the government proves that thedefendant sold or sold short PDA stock while knowingly inpossession of the material nonpublic information."28 In otherwords, even under the more rigorous "use" standard that weadopt today, Smith has nothing to complain about. We musttherefore reject Smith's challenge to the district court's state-of-mind instruction.VFor the foregoing reasons, the district court's decision isaffirmed in all respects.AFFIRMED.
___________________________FOOTNOTES 1 "Short selling is a device whereby the speculator sells stock which hedoes not own, anticipating that the price will decline and that he willthereby be enabled to `cover,' or make delivery of the stock sold, by pur-chasing it at the lesser price. If the decline materializes, the short sellerrealizes as a profit the differential between the sales price and the lowerpurchase or covering price." Louis Loss & Joel Seligman, Fundamentalsof Securities Regulation 699 (3d ed. 1988) (quoting Stock Exchange Prac-tices, Report of Comm. on Banking & Currency, S. Rep. No. 1455, 73dCong., 2d Sess. 50-51 (1934)) (internal quotation marks omitted).2 Perhaps not so coincidentally, Smith was correct in his estimation thatthe price of PDA's stock would decline. Following the company's releaseof its fourth-quarter sales figures on August 19, PDA stock droppedroughly 38%, from approximately eight dollars ($8) per share to approxi-mately five dollars ($5) per share. In addition to the substantial losses heavoided by selling his own stock -- somewhere in the neighborhood of$150,000 -- Smith's short sales netted him approximately $50,000.3 The record does not reveal the precise reason for Gore's curiosity.4 The court granted the motion to dismiss with respect to part of theobstruction count on October 11, 1996, and with respect to the remainderon November 1, 1996.5 In reviewing a motion to suppress, we may affirm on any basis fairlysupported by the record. See United States v. Smith, 790 F.2d 789, 792(9th Cir. 1986).6 Section 2510(17), in turn, defines "electronic storage" to include "anytemporary, intermediate storage of a wire or electronic communicationincidental to the electronic transmission thereof. " 18 U.S.C. S 2510(17).7 The term "acquisition" is not defined in S 2510; however, its ordinarymeaning -- the act of acquiring, or coming into possession of, see Web-ster's Third New International Dictionary 18-19 (1986) -- is certainlybroad enough to encompass Gore's conduct.8 The Stored Communications Act borrows the definitions articulated inS 2510.9 As is most often the case, the legislative history is of no help whatso-ever. In referring to the addition to the definition of "wire communication"in S 2510(1) of the phrase "and such term includes any electronic storageof such communication," the Senate Report accompanying the ElectronicCommunications Privacy Act, Pub. L. No. 99-508, 100 Stat. 1848 (1986),observes that "wire communications in storage like voice mail, remainwire communications, and are protected accordingly. " S. Rep. No. 99-541,99th Cong., 2d Sess. (1986), reprinted in 1986 U.S.C.C.A.N. 3555, 3566(emphasis added). Presumably, that would include protection against"aural or other acquisition" -- "intercept[ion]" -- under S 2515. TheHouse Report, however, suggests a different conclusion: An "electronic mail" service, which permits a sender to transmit a digital message to the service's facility, where it is held in stor- age until the addressee requests it, would be subject to Section 2701. A "voice mail" service operates in much the same way . . . . It would likewise be subject to Section 2701 .H.R. Rep. No. 99-647, 99th Cong., 2d Sess. 63 (1986) (emphasis added).Five words spring immediately to mind: "Friends at a cocktail party."See Conroy v. Aniskoff,
507 U.S. 511, 519
(1993) (Scalia, J., concurring)(recounting Judge Harold Leventhal's description of the use of legislativehistory as "the equivalent of entering a crowded cocktail party and lookingover the heads of the guests for one's friends").10 For a similar treatment, see Thomas R. Greenberg, Comment, E-Mailand Voice Mail: Employee Privacy and the Federal Wiretap Statute, 44Am. U. L. Rev. 219 (1994). There, a student author observes: While the distinction between the terms "intercept" and "access" has little significance for forms of communication that only exist as transmissions, and are never stored, the distinction is critical when a transmitted communication is later electronically stored, because it is at the time of storage that a communication becomes subject to different provisions of the ECPA. This is the case with both E-mail and voice mail messages, both of which have a trans- mission phase and a storage phase. During the transmission phase, any protection against unlawful interception . . . is gov- erned by S 2511 [and S 2515]. On arrival in storage, the same messages are subject to S 2701. Thus, the same message is sub- ject to differing standards of protection because it exists in a dif- ferent statutorily defined medium.Id. at 248 (emphasis added).11 The only cases involving wire communications that have adopted thenarrow definition of "interception" have done so with little analysis andwith seeming unawareness of S 2510(1)'s express inclusion of storedinformation within the meaning of "wire communication." See UnitedStates v. Moriarty, 962 F. Supp. 217 (D. Mass. 1997); Payne v. NorwestCorp., 911 F. Supp. 1299 (D. Mont. 1995), aff'd in part and rev'd in part,113 F.3d 1079 (9th Cir. 1997). Indeed, the Moriarty court cited electronic-communication cases in support of its decision. See Moriarty, 962 F.Supp. at 220-21.Similarly, although the Turk case -- in which the narrow definition of"intercept" first surfaced -- involved wire communications, its interpreta-tion of "intercept" is no longer of any real persuasive force because whenTurk was decided in 1976, the statutory definition of "wirecommunication" did not yet include stored information. Congress'samendment of S 2510(1) to include stored information occurred ten yearslater, in 1986. See Electronic Communications Privacy Act, Pub. L. No.99-508, 100 Stat. 1848 (1986). Consequently, to the extent that Turkstands for a definition of "intercept" that necessarily entails contempora-neity, it has, at least in the context of wire communications, been statu-torily overruled.12 Of course, that would not necessarily be the case if there were otherportions of the Wiretap Act, S 2511 for instance, in which the "storage"element of the "wire communication" definition might remain viable.Every mention in the Act of "wire communication, " however, refers insome manner or another to that communication's "intercept[ion]."13 Many dictionaries do not contain a definition for the word "access" asa verb. Apparently, "access," used as a verb, only came into being in theso-called "computer age." See Fowler's Modern English Usage 13-14(1996).14 Other sections of the Wiretap Act make similar reference to the com-munications themselves. See, e.g., 18 U.S.C.S 2511(1)(a).15 By its terms, S 2515's exclusionary rule "applies even to evidenceobtained by entirely private conduct." Chandler v. United States, 125 F.3d1296, 1298 (9th Cir. 1997). Moreover, this court has explicitly refused toread a "clean hands" exception into S 2515; in other words, the govern-ment is not at liberty to use an intercepted communication or its fruitsmerely because it was not party to the original illegal interception. SeeChandler, 125 F.3d at 1302. Consequently, the fact that Gore retrievedSmith's voicemail message without the aid or inspiration of the govern-ment is irrelevant to our decision.16 The "independent source" exception "operates to admit evidence thatis actually found by legal means through sources unrelated to the illegalsearch." Ramirez-Sandoval, 872 F.2d at 1397 (citing Silverthorne LumberCo. v. United States,
251 U.S. 385, 392
(1920)). The "inevitablediscovery" exception serves to permit evidence that, in spite of the unlaw-ful search, "inevitably would have been discovered by lawful means." Nixv. Williams,
467 U.S. 431, 444
(1984). Neither of these exceptions is perti-nent here.Smith suggests that the evidence against him must be suppressed unlessthe government can show an "independent source " for its investigation.He is wrong. An "independent source" is a sufficient, but not a necessary,condition for admitting evidence that might otherwise be deemed "fruit ofthe poisonous tree." Smith's proposed "independent source" requirementwould deny the "attenuated basis" exception of any independent bite what-soever, and we therefore reject it.17 As often happens in the childhood game of "Telephone," by the timethe information contained in the message had been thrice recycled(through Dr. Phillips, Assistant United States Attorney Williams, and Spe-cial Agent Kelly), it had been watered down somewhat.18 We also refuse Smith's invitation to reverse the district court's rejec-tion of his requests for a full evidentiary hearing on the taint issue. Wereview a district court's decision whether to conduct an evidentiary hear-ing only for abuse of discretion. See United States v. Sarno, 73 F.3d 1470,1502 (9th Cir. 1995). Smith's citation to United States v. Young, 86 F.3d944 (9th Cir. 1996), in support of a more searching standard is not onpoint. In Young, the court applied a de novo standard of review in revers-ing a district court's refusal to conduct an evidentiary hearing on an issueof use immunity. See id. at 947. Young, however, is the only case to departfrom the traditional abuse-of-discretion standard for evidentiary-hearingdeterminations, and we find no compelling reason to extend its holdinginto the "fruit of the poisonous tree" context.Smith complains on appeal that at the suppression hearing, "there was. . . little evidence submitted of how the government actually conductedits investigation." Instead, Smith contends,"the district court heard mostlylegal arguments from both sides." In fact, however, the district courtreceived what it described as "piles" of documentary evidence relating tothe suppression issue. Moreover, Smith specifically stipulated to facts con-cerning the conduct of the government's investigation and declined thecourt's offer to call any live witnesses; consequently, he has little room tocomplain about any perceived lack of fact development at the hearing.It was only after the district court had denied his suppression motionthat Smith requested a more extensive hearing. Testimony from live wit-nesses would have been largely cumulative of evidence that the court hadalready received. The district court did not abuse its discretion. See UnitedStates v. Clay, 476 F.2d 1211, 1216 (9th Cir. 1973).19 The Supreme Court recently recognized a second type of insider trad-ing liability: the so-called "misappropriation theory" of liability. SeeUnited States v. O'Hagan, 117 S. Ct. 2199, 2213-14 (1997).20 Indeed, to do so would, as the SEC argues, "defy logic andexperience." After all, investors are concerned, perhaps above all else,with the future cash flows of the companies in which they invest. Surely,the average investor's interest would be piqued by a company's internalprojections of economic downturn.21 PDA's fiscal year ran from July to June, so that the fourth quartercomprised April, May, and June.22 The line between "soft" and "hard" information is not a bright one.Compare, e.g., In re Verifone Sec. Litig., 11 F.3d 865, 869 (9th Cir. 1993)(characterizing information as "soft"), with, e.g., id. at 872-73 (Reinhardt,J., dissenting) (characterizing same information as "hard"). Indeed, thesame precise data, viewed through two different lenses, can at once beboth "soft" and "hard." In the instant case, for example, the record indi-cates that Smith knew for a fact, on June 3, 1993, that the revenue figuresfor April and May had lagged severely behind expectations (coming upapproximately $2 million short). The record also indicates that shortlythereafter Smith consummated a series of trades in which he sold and soldshort more than 85,000 shares of PDA stock. Was the relevant"information" to which Smith was privy and upon which he allegedlytraded the cold, hard fact that PDA had experienced two grim months ina row? Or was it the soft statistical probability that PDA would not likelyreach fourth quarter expectations? Perhaps not surprisingly, the govern-ment advances the former interpretation, whereas Smith prefers the latter.Ultimately, we need not decide the factual question whether the infor-mation that Smith possessed was "hard" or "soft" because, as is discussedinfra, we conclude that there simply is no per se rule that "soft" informa-tion cannot be "material" within the meaning of Rule 10b-5.23 See, e.g., 7 Louis Loss & Joel Seligman, Securities Regulation 3504-05 (3d ed. 1991); 2 Alan R. Bromberg & Lewis D. Lowenfels, SecuritiesFraud & Commodities Fraud, S 7.4(600), at 7:159, 7:160.14 (1996); AllanHorwich, Possession Versus Use: Is There a Causation Element in theProhibition on Insider Trading?, 52 Bus. Law. 1235 (1997).24 Our own decisions, although not addressing the causation issue specif-ically, also suggest that "use" is a required element of a Rule 10b-5 insidertrading violation. See, e.g., SEC v. Clark, 915 F.2d 439, 443 (9th Cir.1990) ("[A] person violates Rule 10b-5 by buying or selling securities onthe basis of material nonpublic information if .. . he is an insider of thecorporation in whose shares he trades." (quoting Barbara Bader Aldave,Misappropriation: A General Theory of Liability for Trading on Nonpub-lic Information, 13 Hofstra L. Rev. 101, 101-02 (1984) (emphasis added)).25 In fact, a knowing-possession standard would, we think, go a longway toward making insider trading a strict liability crime. In view of thestatutorily authorized ten-year prison sentence that may accompany aninsider trading conviction, see 15 U.S.C.S 78ff(a), any construction ofRule 10b-5 that de facto eliminates the mens rea requirement should bedisfavored, see United States v. United States Gypsum Co.,
438 U.S. 422
,436-38 (1978); Morrissette v. United States,
342 U.S. 246, 250
(1952).26 "An `out-of-the-money' call option allows a person purchasing theoption to buy stock during a limited period in the future at a fixed price(the `strike price'). That price is higher than the current market price.Thus, the option holder essentially is betting that the market price will riseover the strike price within the limited time period. The time period limita-tions make such investments extremely speculative. " United States v.Grossman, 843 F.2d 78, 81 n.1 (2d Cir. 1988).27 We express no view as to whether or not an Adler-type presumptionmay be employed in civil enforcement proceedings under Rule 10b-5.28 The fact that the district court added that the inside information neednot be the "sole[ ]" cause of the trade alters neither our analysis nor ourconclusion. It is sufficient, as the district court observed, that the materialnonpublic information be a "significant factor " in the insider's decision tobuy or sell. We hold simply that the government may not rest upon a dem-onstration that the suspected inside trader bought or sold while in posses-sion of inside information; rather, it must, at a minimum, prove that thesuspect used the information in formulating or consummating his trade.