Before DUFFY, LINDLEY and SWAIM, Circuit Judges.
Petitioners, Great Western Food Distributors, Inc., Nathaniel E. Hess and Charles S. Borden, seek to have set aside an order of the Judicial Officer of the Department of Agriculture that "all contract markets * * * deny all trading privileges to" petitioners "for a period of one year." The order followed disciplinary proceedings instituted under the Commodity Exchange Act, 7 U.S.C.A. § 1 et seq., during which petitioners were found to have (1) attempted to manipulate the price of a commodity, eggs, in interstate commerce, for future delivery on or subject to the rules of the Chicago Mercantile Exchange, in violation of 7 U.S.C.A. §§ 9 and 13; (2) attempted to corner a commodity in interstate commerce, for future delivery on or subject to the rules of the Exchange, in violation of 7 U.S.C.A. § 13; (3) cornered the commodity in interstate commerce for future delivery on or subject to the rules of the Exchange, in violation of 7 U.S.C.A. § 13.
The averments of the complaint were in substance as follow. During November and December 1947, the corporate petitioner purchased and held large quantities of December 1947 egg futures on the Chicago Mercantile Exchange, thereby establishing a dominant and controlling "long" position in such futures, which it maintained and strengthened as the close of trading in such futures approached. Coincidentally, it purchased and held large quantities of "cash" eggs, which were deliverable on December futures contracts and, in addition, stood for and received delivery of substantially all of the remaining eggs deliverable in satisfaction of December futures. Thus, by these purchases and deliveries, it was charged that it obtained possession and control of the supply of deliverable eggs in the Chicago and surrounding areas. These eggs were then offered for sale only at prices which made it unduly costly for shorts to purchase them for delivery, with the consequence that the latter were compelled to cover their sales by the purchase of futures at prices fixed by respondent. Thus, the government charged, respondent attained a position whereby it could, and did, demand such prices as it saw fit for "cash" eggs and December futures from persons who had sold such futures and were obligated to deliver eggs or purchase futures in order to perform their contracts. The complaint further averred that these transactions were carried out by the individual petitioners in their capacity as officers and employees of the corporation and were undertaken for the purpose and with the intent of widening the difference between the price of December 1947 and January 1948 egg future contracts, and increasing or preventing a decrease in the price of eggs deliverable in satisfaction of December futures contracts. Petitioners denied the charges, but the Referee, before whom the initial hearings were held, and, subsequently, the judicial Officer found that the evidence presented sustained the complaint.
The order is attacked on several grounds. The first, that the complaint did not charge an offense subject to administrative disciplinary action under Section 6(b) of the Act is, we think, without merit. Section 6(b) provides for disciplinary proceedings if a person "is violating or has violated any of the provisions of this chapter * * *". Section 9 makes it unlawful to attempt to manipulate the price of a commodity in interstate commerce; to attempt to corner a commodity in interstate commerce, or to corner any such commodity. The complaint charged petitioners with the very conduct prohibited by this section. There can be no doubt that the averments constituted an offense under Section 6(b) of the Act. Cf. Wallace v. Cutten, 298 U.S. 229, 56 S. Ct. 753, 80 L. Ed. 1157.
Nor can it be contended that the factual allegations of the complaint did not spell out a corner of the egg market in December 1947. Generally speaking, a corner is an executed plan of manipulation of prices of a given commodity whereby a trader or group of traders gains control of the supply or the future demand of a commodity and requires the shorts to settle their obligations, either by the purchase of deliverable quantities of the supply or offsetting long contracts, at an arbitrary, abnormal and dictated price imposed by the cornerer. This manipulation may be effected by creation of an artificial demand through purchases of long contracts in excess of the known deliverable supply, see, e.g. Peto v. Howell, 7 Cir., 101 F.2d 353; or by the purchase of all of the available cash supply, see Baer and Woodruff, Commodity Exchanges (3rd Ed. 1935) p. 146; or by a combination of both, as charged in this complaint. See U.S. v. Patten, 226 U.S. 525, 33 S. Ct. 141, 57 L. Ed. 333.
Petitioners' main attack upon the order is an assertion of inadequacy in the proof adduced by the government to sustain the complaint. The parties have joined in the issue of a completed corner as their focal point of difference.The reason for this common ground is obvious. If the proof warranted a conclusion that petitioners had cornered the egg market on the Chicago Mercantile Exchange in December 1947, it necessarily included adequate proof of attempting to corner and attempting to manipulate. Therefore, we can restrict our consideration of the proof for the time being, at least, to the question of the completed corner.
We are told by Section 6(b) of the Act that, upon judicial review of a disciplinary order, the findings of the Judicial Officer shall be "conclusive" if they are "supported by the weight of evidence". In General Foods Corp. v. Brannan, 7 Cir., 170 F.2d 220, 223, this court interpreted this language as follows: "* * * the standard to be employed is something other than the 'substantial evidence rule' controlling in the review of other administrative orders. * * * petitioners are entitled to have the order vacated unless this court concludes that it is sustained by the weight of the evidence, and to us that means the preponderance or greater weight."
However, while this court must examine the sufficiency of the evidence, and this may entail a careful consideration of the proof, see Nichols & Co. v. Secretary of Agriculture, 1 Cir., 131 F.2d 651, we should be mindful of the practical difficulties and pitfalls presented in attempting to redetermine, from an inanimate record alone, issues such as these here presented. Often the "most telling part" of the evidence is not apparent from the printed page, "for on the issue of veracity the bearing and delivery of a witness will usually be the dominating factors". N.L.R.B. v. Universal Camera Corp., 2 Cir., 190 F.2d 429, 430. Thus, "we may not disregard the superior advantages of the examiner who heard and saw the witnesses for determining their credibility, and so for ascertaining the truth." Ohio Associated Tel. Co. v. N.L.R.B., 6 Cir., 192 F.2d 664, 668.
In a proceeding such as this these established admonitions are of particular import for two reasons. First, the intent of the parties during their trading is a determinative element of a punishable corner. Unintentional corners can develop, 7 F.T.C. Report on the Grain Trade 243 (1926), and should not carry the pain of forfeiture of trading privileges. Consequently, the demeanor of the witnesses, as they expound the reasons behind their operations, is of substantial significance in a referee's findings and conclusion. In addition, the technical and complex nature of the charges made necessitated recourse to extensive use of expert testimony, for here, as is often the case in proceedings under regulatory statutes, the evidence is largely of a dual nature: statistical and parol interpretation of the statistics. In the latter aspect the referee again possesses a greatly advantageous position, for, as the several experts testify, he is able to ascertain their grasp and knowledge, their perspective and understanding of the materials presented to them for interpretation. Their conduct on the stand may enhance or belie their status as experts. In short, anyone who has observed witnesses on the stand will know that those "who see and hear witnesses are much better equipped to weigh the evidence and determine the credibility to be extended to those testifying than are the judges of courts of review who do not enjoy the same advantages." Jennings v. Murphy, 7 Cir., 194 F.2d 35, 36.
It would seem, then, that the function of this court is something other than that of mechanically reweighing the evidence to ascertain in which direction it preponderates; it is rather to review the record with the purpose of determining whether the finder of the fact was justified, i.e. acted reasonably, in concluding that the evidence, including the demeanor of the witnesses, the reasonable inferences drawn therefrom and other pertinent circumstances, supported his findings. To go further is to disregard the "most telling part" of the evidence. N.L.R.B. v. Universal Camera Corp., supra. With this in mind we approach the proof offered in this proceeding.
For purposes of clarity we discuss the evidence under four divisions: (1) petitioner Great Western's long position in the December 1947 futures trading; (2) Great Western's cash supply holdings; (3) the effect, if any, of these matters on the prices prevailing during December 1947, and (4) the intent of petitioners at the time of Great Western's operations.
The complaint first averred, and the Judicial Officer found, that Great Western acquired and maintained a dominant and controlling long position in the December 1947 egg futures market. The evidence on this point, and, as will appear later the other allegations as well, was largely statistical, supplemented by expert analysis and interpretation. It was shown that in mid-November 1947 Great Western entered upon an extensive program of purchasing December futures; that, by December 1, 1947, it held 272, or 33.3%, of the 816 contracts then open on the market; that it maintained this relative position, with slight fluctuations, through December 15, while other interests were disposing of their long holdings, so that, on the 15th, it held 256, or 59.6% of 431 contracts; that it then began to liquidate its holdings, but not with the same speed as other traders in the market, so that, while its numerical position decreased its relative percentage position increased; that, at the close of trading on December 19 it held 179 of 235 longs remaining open and, at the close of trading on December 22, 119 of 153 still open, or 76.2% and 73.9% respectively. Thus, from December 15 through the close of trading in December futures on December 23, Great Western held between 60% and 75% of a still substantial number of open long contracts then on the market. This statistical evidence was undisputed. Consequently, there can be no doubt of the propriety of the finding that Great Western acquired and maintained a dominant and controlling long position in December 1947 egg futures which manifested itself most emphatically subsequent to December 15.
It was alleged that Great Western gained control of the cash supply of eggs available to the shorts for performance of their December 1947 obligations. To determine whether this averment was adequately proved it is necessary first to define the grade of eggs deliverable on the December 1947 contracts. The trading unit for the month was one carlot consisting of 600 cases of 30 dozen eggs or, 18,000 dozen eggs. Par delivery consisted of refrigerator eggs, graded U.S. No. 2 Extras, stored in approved warehouses in Chicago. In addition, under the rules of the Exchange, the shorts could satisfy their obligations by delivery of (1) fresh eggs or, (2) the same grade of refrigerator eggs as above described, stored in approved out of town warehouses. The evidence established that fresh eggs customarily range higher in price than refrigerators and the short was given no premium for their delivery. ...