MR JUSTICE STEWART delivered the opinion of the Court.Section 16(b) of the Securities Exchange Act of 1934, 48 Stat. 896, 15 U.S.C. § 78p(b), provides, among other things, that a corporation may recover for itself the profits realized by an owner of more than 10% of its shares from a purchase and sale of its stock within any six-month period, provided that the owner held more than 10% "both at the time of the purchase and sale." [Footnote 1]  In this case, the respondent, the owner of 13.2% of a corporation's shares, disposed of its entire holdings in two sales, both of them within six months of purchase.  The Page 404 U. S. 420 first sale reduced the respondent's holdings to 9.96%, and the second disposed of the remainder.  The question presented is whether the profits derived from the second sale are recoverable by the Corporation under § 16(b).  We hold that they are not.IOn June 16, 1967, the respondent, Emerson Electric Co., acquired 13.2% of the outstanding common stock of Dodge Manufacturing Co., pursuant to a tender offer made in an unsuccessful attempt to take over Dodge.  The purchase price for this stock was $63 per share.  Shortly thereafter, the shareholders of Dodge approved a merger with the petitioner, Reliance Electric Co.  Faced with the certain failure of any further attempt to take over Dodge, and with the prospect of being forced to exchange its Dodge shares for stock in the merged corporation in the near future, [Footnote 2] Emerson, following a plan outlined by its general counsel, decided to dispose of enough shares to bring its holdings below 10% in order to immunize the disposal of the remainder of its shares from liability under § 16(b).  Pursuant to counsel's recommendation, Emerson on August 28 sold 37,000 shares of Dodge common stock to a brokerage house at $68 per share.  This sale reduced Emerson's holdings in Dodge to 9.96% of the outstanding common stock.  The remaining shares were then sold to Dodge at $69 per share on September 11.After a demand on it by Reliance for the profits realized on both sales, Emerson filed this action seeking a declaratory judgment as to its liability under § 16(b).  Emerson first claimed that it was not liable at all, Page 404 U. S. 421 because it was not a 10% owner at the time of the purchase of the Dodge shares.  The District Court disagreed, holding that a purchase of stock falls within § 16(b) where the purchaser becomes a 10% owner by virtue of the purchase.  The Court of Appeals affirmed this holding, and Emerson did not cross-petition for certiorari.  Thus, that question is not before us.Emerson alternatively argued to the District Court that, assuming it was a 10% stockholder at the time of the purchase, it was liable only for the profits on the August 28 sale of 37,000 shares, because, after that time, it was no longer a 10% owner within the meaning of § 16(b).  After trial on the issue of liability alone, the District Court held Emerson liable for the entire amount of its profits.  The court found that Emerson's sales of Dodge stock were "effected pursuant to a single predetermined plan of disposition with the overall intent and purpose of avoiding Section 16(b) liability," and construed the term "time of . . . sale" to include"the entire period during which a series of related transactions take place pursuant to a plan by which a 10% beneficial owner disposes of his stock holdings."306 F. Supp. 588, 592.On an interlocutory appeal under 28 U.S.C. § 1292(b), the Court of Appeals upheld the finding that Emerson "split" its sale of Dodge stock simply in order to avoid most of its potential liability under § 16(b), but it held this fact irrelevant under the statute so long as the two sales are "not legally tied to each other and [are] made at different times to different buyers. . . ."  434 F.2d 918, 926.  Accordingly, the Court of Appeals reversed the District Court's judgment as to Emerson's liability for its profits on the September 11 sale, and remanded for a determination of the amount of Emerson's liability on the August 28 sale.  Reliance filed a petition for certiorari, which we granted Page 404 U. S. 422 in order to consider an unresolved question under an important federal statute.  401 U.S. 1008.IIThe history and purpose of § 16(b) have been exhaustively reviewed by federal courts on several occasions since its enactment in 1934.  See, e.g., Smolowe v. Delendo Corp., 136 F.2d 231; Adler v. Klawans, 267 F.2d 840; Blau v. Max Factor & Co., 342 F.2d 304.  Those courts have recognized that the only method Congress deemed effective to curb the evils of insider trading was a flat rule taking the profits out of a class of transactions in which the possibility of abuse was believed to be intolerably great.  As one court observed:"In order to achieve its goals, Congress chose a relatively arbitrary rule capable of easy administration.  The objective standard of Section 16(b) imposes strict liability upon substantially all transactions occurring within the statutory time period, regardless of the intent of the insider or the existence of actual speculation.  This approach maximized the ability of the rule to eradicate speculative abuses by reducing difficulties in proof.  Such arbitrary and sweeping coverage was deemed necessary to insure the optimum prophylactic effect."Bershad v. McDonough, 428 F.2d 693, 696.  Thus, Congress did not reach every transaction in which an investor actually relies on inside information.  A person avoids liability if he does not meet the statutory definition of an "insider," or if he sells more than six months after purchase.  Liability cannot be imposed simply because the investor structured his transaction with the intent of avoiding liability under § 16(b).  The question is, rather, whether the method used to "avoid" liability is one permitted by the statute. Page 404 U. S. 423Among the "objective standards" contained in § 16(b) is the requirement that a 10% owner be such "both at the time of the purchase and sale . . . of the security involved."  Read literally, this language clearly contemplates that a statutory insider might sell enough shares to bring his holdings below 10%, and later -- but still within six months -- sell additional shares free from liability under the statute.  Indeed, commentators on the securities laws have recommended this exact procedure for a 10% owner who, like Emerson, wishes to dispose of his holdings within six months of their purchase. [Footnote 3]Under the approach used by Reliance, and adopted by the District Court, the apparent immunity of profits derived from Emerson's second sale is lost where the two sales, though independent in every other respect, are "interrelated parts of a single plan."  306 F. Supp.  at 592.  But a "plan" to sell that is conceived within six months of purchase clearly would not fall within § 16(b) if the sale were made after the six months had expired, and we see no basis in the statute for a different result where the 10% requirement is involved, rather than the six-month limitation.The dissenting opinion, post at  404 U. S. 442, reasons that "the 10% rule is based upon a conclusive statutory presumption that ownership of this quantity of stock suffices to Page 404 U. S. 424 provide access to inside information," and that it thus"follows that all sales by a more-than-10% owner within the six-month period carry the presumption of a taint, even if a prior transaction within the period has reduced the beneficial ownership to 10% or below."While there may be logic in this position, it was clearly rejected as a basis for liability when Congress included the proviso that a 10% owner must be such both at the time of the purchase and of the sale.  Although the legislative history affords no explanation of the purpose of the proviso, it may be that Congress regarded one with a long-term investment of more than 10% as more likely to have access to inside information than one who moves in and out of the 10% category.  But whatever the rationale of the proviso, it cannot be disregarded simply on the ground that it may be inconsistent with our assessment of the "wholesome purpose" of the Act.To be sure, where alternative constructions of the terms of § 16(b) are possible, those terms are to be given the construction that best serves the congressional purpose of curbing short-swing speculation by corporate insiders. [Footnote 4]  But a construction of the term "at the time Page 404 U. S. 425 of . . . sale" that treats two sales as one upon proof of a preexisting intent by the seller is scarcely in harmony with the congressional design of predicating liability upon an "objective measure of proof."  Smolowe v. Delendo Corp., supra, at 235.  Were we to adopt the approach urged by Reliance, we could be sure that investors would not in the future provide such convenient proof of their intent as Emerson did in this case.  If a "two-step" sale of a 10% owner's holdings within six months of purchase is thought to give rise to the kind of evil that Congress sought to correct through § 16(b), those transactions can be more effectively deterred by an amendment to the statute that preserves its mechanical quality than by a judicial search for the will-o'-the-wisp of an investor's "intent" in each litigated case.IIIThe Securities and Exchange Commission, participating as amicus curiae, argues for an interpretation of the statute that both covers Emerson's transaction and preserves the mechanical quality of the statute.  Seizing upon a fragment of legislative history -- a brief exchange between one of the principal authors of the bill and two members of the Senate Committee during hearings on the bill [Footnote 5] -- the Commission suggests that the sole purpose Page 404 U. S. 426 of the requirement of 10% ownership at the time of both purchase and sale was to exclude from the statute's coverage those persons who became 10% shareholders "involuntarily," as, for example, by legal succession or by a reduction in the total number of outstanding shares of the corporation.  The effect of such an interpretation would be to bring within § 16(b) all sales within six months by one who has gained the position of a 10% owner through voluntary purchase, regardless of the amount of his holdings at the time of the sale.  We cannot accept such a construction of the Act.In the first place, we note that the SEC's own rules undercut such an interpretation.  Recognizing the interrelatedness of § 16(a) and § 16(b) of the Act, the Commission has used its power to grant exemptions under § 16(b) to exclude from liability any transaction that does not fall within the reporting requirements of § 16(a). [Footnote 6]  A 10% owner is required by that section to report at the end of each month any changes in his holdings in the corporation during that month.  The Commission has interpreted this provision to require a report only if the stockholder held more than 10% of the corporation's shares at some time during the month. [Footnote 7]  Thus, a 10% owner who, like Emerson, sells down to 9.96% one month and disposes of the remainder the following month would presumably be exempt from the reporting requirement, and hence from § 16(b) under the SEC's own rules, without regard to whether he acquired the stock "voluntarily."But the SEC's argument would fail even if it were not contradicted by the Commission's own previous construction of the Act.  As we said in Blau v. Lehman, Page 404 U. S. 427 368 U. S. 403,  368 U. S. 411, one"may agree that . . . the Commission present[s] persuasive policy arguments that the Act should be broadened . . . to prevent 'the unfair use of information' more effectively than can be accomplished by leaving the Act so as to require forfeiture of profits only by those specifically designated by Congress to suffer those losses."But we are not free to adopt a construction that not only strains, but flatly contradicts, the words of the statute.The judgment isAffirmed
U.S. Supreme CourtReliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418 (1972)Reliance Electric Co. v. Emerson Electric Co.No. 70-79Argued November 111, 1971Decided January 11, 1972404 U.S. 418SyllabusRespondent, the owner of more than 10% of Dodge Mfg. Co.'s stock, within six months of the purchase thereof sold enough shares to a broker to reduce its holding to 9.96%, for the purpose of immunizing the disposal of the remainder from liability under § 16(b) of the Securities Exchange Act of 1934.  Under that provision, a corporation may recover for itself the profits realized by an owner of more than 10% of its shares from a purchase and sale of its stock within any six-month period, provided the owner held more than 10% "both at the time of purchase and sale."Held:  Under the terms of § 16(b), respondent is not liable to petitioner (Dodge's successor) for profits derived from the sale of the 9.96% to Dodge within six months of purchase.  Pp. 422-427.434 F.2d 918, affirmed.STEWART, J., delivered the opinion of the Court, in which BURGER, C.J., and MARSHALL and BLACKMUN, JJ., joined.  DOUGLAS, J., filed a dissenting opinion, in which BRENNAN and WHITE, JJ., joined, post, p.  404 U.S. 427.  POWELL and REHNQUIST, JJ., took no part in the consideration or decision of the case. Page 404 U. S. 419