                  FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

THOMAS R. DREILING, on behalf of        
InfoSpace Inc.,
                 Plaintiff-Appellant,
                  v.
AMERICAN EXPRESS COMPANY, a
New York corporation, including              No. 04-35715
its divisions and subsidiaries,
                          Defendant,           D.C. No.
                                            CV-03-03740-TSZ
                 and                           OPINION
INFOSPACE, INC., a Delaware
Corporation; AMERICAN EXPRESS
TRAVEL RELATED SERVICES
COMPANY INC.,
              Defendants-Appellees.
                                        
        Appeal from the United States District Court
          for the Western District of Washington
         Thomas S. Zilly, District Judge, Presiding

                  Argued and Submitted
             May 3, 2006—Seattle, Washington

                    Filed August 14, 2006

  Before: Stephen Reinhardt, M. Margaret McKeown, and
             Richard R. Clifton, Circuit Judges.

                Opinion by Judge McKeown




                             9563
9566         DREILING v. AMERICAN EXPRESS CO.


                       COUNSEL

Jonathan P. Meier, Sirianni Youtz Meier & Spoonemore,
Seattle, Washington, for the plaintiff-appellant.

Jason C. Vigna and Robert E. Zimet, Skadden, Arps, Slate,
Meagher & Flom, LLP, New York, New York, for the
defendant-appellee.
              DREILING v. AMERICAN EXPRESS CO.            9567
Allan A. Capute, Securities and Exchange Commission,
Washington, D.C., for amicus curiae.


                         OPINION

McKEOWN, Circuit Judge:

   Section 16(b) of the Exchange Act bars corporate insiders,
such as directors, from profiting on short-swing trades,
defined as the purchase and sale of stock within a six-month
period. 15 U.S.C. § 78p(b). Rule 16b-3(d), promulgated by
the Securities and Exchange Commission (“SEC”), exempts
an insider from § 16(b) liability when the transaction takes
place with the issuer and is specifically approved by the issu-
er’s board of directors or majority of shareholders. 17 C.F.R.
§ 240.16b-3(d).

   Thomas Dreiling, a shareholder in InfoSpace, Inc., alleges
that American Express Travel Related Services (“TRS”) vio-
lated Section 16(b) by engaging in a short-swing trade in Info-
Space stock. Dreiling claims TRS was an insider, specifically
a “director by deputization,” because a TRS executive officer
sat on the InfoSpace board during the trade. The district court
dismissed Dreiling’s complaint, concluding that Rule 16b-
3(d) exempted TRS from liability because the InfoSpace
board approved the stock grant to insider TRS.

   On appeal, Dreiling argues that the SEC lacked the author-
ity to promulgate Rule 16b-3(d) or, in the alternative, that
Rule 16b-3(d) can not apply to TRS because the InfoSpace
board did not know that TRS was a “director by deputiza-
tion.” The SEC filed an amicus curiae brief, siding with TRS
as to the validity of Rule 16b-3(d) but agreeing with Dreiling
that TRS would not be entitled to the protection of the rule if
it were an undisclosed director by deputization.
9568           DREILING v. AMERICAN EXPRESS CO.
   We agree with the district court that the SEC had authority
to adopt Rule 16b-3(d), and that we owe deference to the
SEC’s interpretation of the rule to cover directors by deput-
ization. These are legal questions appropriately reached on
appeal. Whether the TRS executive was a director by deput-
ization and whether the InfoSpace board was knowledgeable
as to that relationship are questions of fact that defeat dis-
missal under Federal Rule of Civil Procedure 12(b)(6). We
thus reverse and remand for further proceedings.

                         BACKGROUND

I.   TRS   AND THE   PRIO-INFOSPACE MERGER

   In the late 1990s, TRS, a subsidiary of the American
Express Company, made strategic equity investments in vari-
ous e-commerce companies. During this period, TRS became
a significant minority investor in Prio, Inc. In December 1999,
Prio entered a merger agreement with InfoSpace in which
InfoSpace agreed to issue 5.37 million shares of stock, worth
about $400 million, to buy Prio from its former shareholders.
InfoSpace provides infrastructure services for wireless, wire-
line and broadband platforms.

   David House joined the InfoSpace board of directors in
January 2000, which was after the merger agreement was exe-
cuted but before the merger closed. When appointed to the
InfoSpace board, House was a TRS executive officer who had
served as a Prio director just before the merger was
announced. House served as an InfoSpace director for 16
months, through May 2001. Before joining the board, House
himself owned no shares of InfoSpace.

  The merger closed February 25, 2000, and Prio was inte-
grated into InfoSpace. As of the merger, TRS owned about
12% of Prio, but after the merger, TRS owned less than 10%
of InfoSpace’s shares. According to Dreiling, just after the
merger agreement, InfoSpace’s share price increased by
                    DREILING v. AMERICAN EXPRESS CO.                      9569
350%, only to lose almost 80% in value during the six months
after the merger was completed.

II.    DREILING’S § 16(b) ACTION

   Dreiling’s First Amended Complaint alleged that “[w]ithin
periods of less than six months, [TRS] engaged in purchases
and corresponding sales and or sales and a corresponding pur-
chase of Infospace stock” and that TRS should disgorge any
gains. After the merger announcement but before closing,
Dreiling bought 100 shares of InfoSpace, which he has held
ever since. In September 2003, Dreiling submitted a demand
letter to InfoSpace, asking it to bring a § 16(b) action against
TRS. InfoSpace advised that it would not pursue an action
against TRS because TRS was not a director on the InfoSpace
board: “Although Mr. House was an executive officer of
AmEx during that time period, the facts show that he did not
in any way represent AmEx on the Board of Directors of the
Company. Accordingly, AmEx was not a director by deput-
ization and was not subject to Section 16 of the Exchange
Act.”

  After this rejection,1 Dreiling filed a complaint in Novem-
ber 2003, alleging that TRS was a director on the InfoSpace
board, and thus an insider pursuant to § 16(b), and that TRS
had profited from a short-swing trade in InfoSpace stock in
violation of § 16(b). Although TRS itself was not on the Info-
Space board, Dreiling claimed that it had deputized David
House to represent TRS interests on the board. Dreiling also
  1
   Before bringing an action against TRS, Dreiling was obligated by
§ 16(b) to wait until InfoSpace failed or refused to do so:
      Suit to recover such profit may be instituted . . . by the issuer, or
      by the owner of any security of the issuer in the name and in
      behalf of the issuer if the issuer shall fail or refuse to bring such
      suit within sixty days after request or shall fail diligently to pros-
      ecute the same thereafter . . . .
15 U.S.C. § 78p(b).
9570              DREILING v. AMERICAN EXPRESS CO.
alleged that TRS acquired InfoSpace stock on February 25,
2000, and sold much of it sometime before August 24, 2000.
As a remedy, Dreiling sought disgorgement of short-swing
profits TRS received from trading InfoSpace stock.

   TRS moved to dismiss under Rule 12(b)(6). The district
court dismissed the complaint on the basis that Rule 16b-
3(d)(1) exempted TRS from § 16(b) liability, as TRS had
acquired InfoSpace shares directly from the issuer with the
approval of the InfoSpace board. The district court declined
to hold, as Dreiling urged, that Rule 16b-3(d) applied only to
compensatory grants of stock to officers or directors, and
rejected the argument that Rule 16b-3(d) was an invalid rule-
making.

                               ANALYSIS

   Dreiling argues that the SEC had no authority to promul-
gate Rule 16b-3(d) because it was contrary to § 16(b).2 Alter-
nately, he urges that Rule 16b-3(d) does not apply to TRS
because the InfoSpace board failed to explicitly approve the
stock grant to TRS as an insider—specifically through direc-
tor David House, who had access to inside information and
who, as a director by deputization, effectively represented
TRS’s interests on the InfoSpace board.

I.       STATUTORY AND REGULATORY FRAMEWORK                  OF   INSIDER
         TRADING UNDER § 16(b) AND RULE 16b-3(d)

A.       OVERVIEW OF § 16(b)

     Congress enacted § 16(b) as part of the Securities
     2
    We review de novo a dismissal under Rule 12(b)(6), Arrington v.
Wong, 237 F.3d 1066, 1069 (9th Cir. 2001), and may consider documents
referred to in the complaint or any matter subject to judicial notice, such
as SEC filings. MGIC Indemnity Corp. v. Weisman, 803 F.2d 500, 504
(9th Cir. 1986).
               DREILING v. AMERICAN EXPRESS CO.                  9571
Exchange Act of 1934 to prevent corporate insiders from
exploiting their access to “information not generally available
to others.” Kern County Land Co. v. Occidental Petroleum
Corp., 411 U.S. 582, 592 (1973). Section 16(b) reads in rele-
vant part:

    For the purpose of preventing the unfair use of infor-
    mation which may have been obtained by such bene-
    ficial owner, director, or officer by reason of his
    relationship to the issuer, any profit realized by him
    from any purchase and sale . . . of any equity secur-
    ity of such issuer . . . within any period of less than
    six months . . . shall . . . be recoverable by the issuer,
    irrespective of any intention on the part of such ben-
    eficial owner, director, or officer in entering into
    such transaction of holding the security . . . . This
    subsection shall not be construed to cover . . . any
    transaction or transactions which the Commission
    by rules and regulations may exempt as not compre-
    hended within the purpose of this subsection.

15 U.S.C. § 78p(b) (emphasis added).

   [1] In passing the statute, “Congress recognized that short-
swing speculation by stockholders with advance, inside infor-
mation would threaten the goal of the Securities Exchange
Act to ‘insure the maintenance of fair and honest markets.’ ”
Kern County, 411 U.S. at 591 (quoting 15 U.S.C. § 78b). Sec-
tion 16(b) flatly prohibits a “class of transactions in which the
possibility of abuse was believed to be intolerably great,” id.
at 592, and does so by “impos[ing] a strict prophylactic rule
with respect to insider, short-swing trading.” Foremost-
McKesson, Inc. v. Provident Sec. Co., 423 U.S. 232, 251
(1976). The statute identifies three classes of insiders—
directors, officers and beneficial owners—and makes them
liable, without fault or intended wrongdoing, for trading in
their company’s shares. 15 U.S.C. § 78p(b).
9572             DREILING v. AMERICAN EXPRESS CO.
   [2] Section 16(b) does not, however, reach all insider trad-
ing. Foremost-McKesson, 423 U.S. at 253 (“Congress itself
limited carefully the liability imposed by § 16(b).”). The stat-
ute imposes strict liability on insiders only for “shortswing”
trades—specifically, a coupled purchase-and-sale, or sale-and
purchase, completed within six months. 15 U.S.C. § 78p(b).3
Courts have recognized that § 16(b) is a blunt instrument, at
once both over- and under-inclusive. See Citadel Holding
Corp. v. Roven, 26 F.3d 960, 965 (9th Cir. 1994) (“[Section]
16(b) is a relatively arbitrary, ‘flat rule’ . . . .” ) (quoting Reli-
ance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418, 422
(1972)). The statute is over-inclusive in that it imposes strict
liability regardless of motive, including trades not actually
based on inside information. Kern, 411 U.S. at 595 (noting
that § 16(b) requires disgorgement of profits “without proof
of actual abuse of insider information, and without proof of
intent to profit on the basis of such information”). It is under-
inclusive in that there is no liability for trades made on inside
information if more than six months transpire between pur-
chase and sale. Foremost-McKesson, 423 U.S. at 252 (“Even
an insider may trade freely without incurring statutory liabil-
ity if, for example, he spaces his transactions at intervals
greater than six months.”).

   [3] In response to the statute’s over-inclusiveness, Congress
exempted two classes of transactions from the “flat rule” of
liability. See 15 U.S.C. § 78p(b) (exempting from liability
securities “acquired in good faith in connection with a debt
previously contracted” and transactions in which a “beneficial
owner was not such both at the time of the purchase and sale,
or the sale and purchase”). Aside from these specific transac-
  3
   See also Allis-Chalmers Mfg. Co. v. Gulf & Western Indus., Inc., 527
F.2d 335, 346 (7th Cir. 1975) cert. denied 96 S.Ct. 1142 (1976) (“Our
review of the history of the statute convinces us that in enacting section
16(b) Congress had in mind a specific type of two-part transaction consist-
ing either of a purchase and subsequent sale, or a sale and subsequent
repurchase . . . .”).
               DREILING v. AMERICAN EXPRESS CO.               9573
tion exemptions, Congress provided an open-ended delegation
to the SEC, authorizing it to exempt other transactions “not
comprehended within the purpose of [§ 16(b)].” Id. § 78p(b).

B.   OVERVIEW OF RULE 16b-3(d)—INSIDER-ISSUER
     TRANSACTIONS

  Before 1996, Rule 16b-3 and its pre-cursor Rule X-16B-3
exempted only insider-issuer transactions, approved by the
board of directors, that were related to officer or director com-
pensation. The 1996 revision of Rule 16b-3 exempted all
grants or awards of stock or options by an issuer to an insider,
compensatory or not, if the transaction was approved by the
board or majority of shareholders. 17 C.F.R. § 240.16b-3(d).
In relevant part, the rule reads:

     (d) Acquisitions from the issuer. Any transaction,
     other than a Discretionary Transaction, involving an
     acquisition from the issuer (including without limita-
     tion a grant or award), whether or not intended for
     a compensatory or other particular purpose, shall be
     exempt if:

         (1) The transaction is approved by the
         board of directors of the issuer, or a com-
         mittee of the board of directors that is com-
         posed solely of two or more Non-Employee
         Directors; . . .

17 C.F.R. § 240.16b-3.

   [4] The SEC adopted the 1996 version of Rule 16b-3(d) as
part of a number of amendments to Rule 16b-3 to present a
“simplified, flexible approach” to insider transactions. Owner-
ship Reports and Trading by Officers, Directors and Principal
Security Holders, 61 Fed. Reg. 30,376, 30,377 (June 14,
1996). The SEC exempted non-compensatory issuer-insider
trades because they “do not appear to present the same oppor-
9574             DREILING v. AMERICAN EXPRESS CO.
tunities for insider profit on the basis of non-public informa-
tion as do market transactions by officers and directors,” id.,
and “where the issuer, rather than trading markets, is on the
other side of an officer or director’s transaction in the issuer’s
equity securities, any profit obtained is not at the expense of
uninformed shareholders and other market participants of the
type contemplated by the statute.” Id. The SEC based these
observations “on its experience with the Section 16 rules,”
and concluded that short-swing transactions between an
insider and an issuer that “satisfy . . . objective gate-keeping
conditions[ ] are not vehicles for the speculative abuse that
section 16(b) was designed to prevent.” Id. Thus, the SEC
enacted Rule 16b-3(d) because board or shareholder-approved
insider-issuer transactions were “not contemplated within the
purpose” of § 16(b).

   The SEC’s decision to revise Rule 16b-3(d) in 1996 was
founded not just on its years of experience making rules under
§ 16 rules, 61 Fed. Reg. at 30,377, but also, according to the
SEC’s amicus brief, “careful study, notice and public com-
ment.” The SEC received 38 letters in its solicitation for com-
ments on early versions of Rule 16b-3(d), mostly positive. Id.
at 30,377 & 30,380. Rule 16b-3(d) also reconciles competing
policies.4

   Finally, Rule 16b-3(d) implements certain of the “objective
gate-keeping conditions,” such as approval by the issuer’s
board of directors or ratification by a majority of sharehold-
ers. 17 C.F.R. § 240.16b-3(d)(1) & (2). In identifying these
“gate-keeping” conditions, the SEC noted that “[a]lthough the
new rule would not prohibit Non-Employee Directors or the
full board from awarding themselves grants of issuer equity
  4
   The SEC noted in its amicus brief that before the 1996 version amend-
ment to Rule 16b-3, the old exemption immunized only “approved written
employee benefit plan[s]” which “did not work and actually discouraged
some insiders from acquiring issuer securities through employee benefit
plans.”
                  DREILING v. AMERICAN EXPRESS CO.                     9575
securities, such grants would be subject to state laws govern-
ing corporate self-dealing.” 61 Fed. Reg. at 30,381.

II.   VALIDITY OF RULE 16b-3

   [5] Because the statute explicitly delegates to the SEC the
authority to promulgate other transaction exemptions, the
question is not whether Rule 16b-3(d) can be found explicitly
in the text of § 16(b).5 Rather, the more nuanced question is
whether Rule 16b-3(d) exempts transactions “not compre-
hended within the purpose” of § 16(b). This posture, in turn,
requires us to discern the limits of the open-ended expression
of congressional intent that is § 16(b). In analyzing Rule 16b-
3(d), we give the SEC’s view “controlling weight”—unless
the regulation is “arbitrary, capricious, or manifestly contrary
to the statute”—because “Congress has explicitly left a gap
for the agency to fill.” Chevron, U.S.A., Inc. v. Natural Res.
Def. Council, 467 U.S. 837, 843-44 (1984).6

  [6] The SEC has publicly and carefully considered the issue
of speculative abuse before finalizing Rule 16b-3(d). Conse-
quently, we give significant weight to the SEC’s determina-
  5
     Dreiling is thus wrong to assert that § 16(b) on its face bars the SEC
from promulgating a rule exempting issuer-insider transactions. The text
of § 16(b) does not explicitly exempt board-approved insider-issuer trans-
actions, as written in Rule 16b-3, but neither does it explicitly bar the SEC
from enacting such an exemption. Congress has not “directly spoken to the
precise question at issue,” so the silence of § 16(b) on board-approved
insider-issuer transactions is not “the end of the matter.” Chevron U.S.A.,
Inc. v. Natural Res. Def. Council, 467 U.S. 837, 842 (1984).
   6
     Reviewing an agency’s construction of a statute, we consider two ques-
tions. Chevron, 467 U.S. at 842-43. First, has Congress “directly spoken
to the precise question at issue”? If so, the court must “give effect to the
unambiguously expressed intent of Congress.” Id. at 842. If not, the sec-
ond is whether the agency’s construction of the statute is permissible. Id.
at 843. If Congress has expressly delegated “authority to the agency to
elucidate a specific provision of the statute by regulation,” the court must
give the regulations “controlling weight unless they are arbitrary, capri-
cious or manifestly contrary to the statute.” Id. at 844.
9576              DREILING v. AMERICAN EXPRESS CO.
tion that board-approved insider-issuer transactions were “not
vehicles for the speculative abuse that section 16(b) was
designed to prevent,” 61 Fed. Reg. at 30,377, and hold that
Rule 16b-3(d) was validly promulgated. Chevron, 467 U.S. at
865 (noting that agency interpretation of statute entitled to
deference when “the regulatory scheme is technical and com-
plex,” the agency “considered the matter in a detailed and rea-
soned fashion,” and “the decision involves reconciling
conflicting policies.”).

   Dreiling challenges the SEC’s authority and argues that
Rule 16b-3(d) is contrary to the purposes of § 16(b)—to pre-
vent speculative abuse and harm uninformed market
participants—for the following reasons: (1) the SEC may only
exempt transactions for which there is no risk of speculative
abuse; (2) empirical evidence indicates that Rule 16b-3(d)
immunizes transactions likely to result in speculative abuse;
(3) certain hypotheticals suggest that Rule 16b-3(d) exempts
speculative abuse; and (4) the SEC enacted Rule 16b-3(d) for
reasons unrelated to speculative abuse.

   Dreiling attempts to place the burden with the SEC to show
that any transaction exemptions under § 16(b) give rise to
“absolutely no possibility of speculative abuse,” citing Kern
as support. See 411 U.S. at 600. In other words, according to
Dreiling, the SEC may not exempt certain transactions other-
wise subject to § 16(b) merely because these transactions give
rise to a “diminished risk” of speculative abuse. Imposing
such a burden on the SEC is inconsistent with both the statute
and Chevron deference.

  [7] Dreiling’s position demands an airtight solution with
“no possibility” of abuse. Neither § 16(b) nor its judicial gloss7
  7
   The Supreme Court’s interpretations of § 16(b) are relevant to deter-
mining if a SEC rule is consistent with statutory purpose because “[t]he
judiciary is the final authority on issues of statutory construction . . . .”
Chevron, 467 U.S. at 843 n.9.
              DREILING v. AMERICAN EXPRESS CO.            9577
suggests, as Dreiling does, that the SEC may only exempt
transactions for which there is zero risk of speculative abuse.
Rather, the Supreme Court has indicated that the SEC is free
to exempt transactions for which the “possibility of abuse” is
not “believed to be intolerably great.” Reliance Elec., 404
U.S. at 422 (emphasis added). The SEC need not show that
the transactions exempted from § 16(b) pose absolutely no
risk of speculative abuse. Foremost-McKesson, 423 U.S. at
244 (finding “unsatisfactory” the argument that the court must
reject any reading of a statutory exemption to § 16(b) that
misses “some possible abuses of inside information”); id. at
252 (“[S]erving the congressional purpose does not require
resolving every ambiguity in favor of liability under
§ 16(b).”). The relevant question is whether Rule 16b-3(d)
exempts transactions for which the risk of speculative abuse
is intolerable or, more broadly, in the words of the statute,
whether the transaction is “not comprehended within the pur-
pose of [§ 16(b)].” 15 U.S.C. § 78p(b).

   As a second prong of attack, Dreiling purports to identify
empirical evidence showing that the risk of speculative abuse
for board-approved, insider-issuer transactions is intolerable.
As we explained, the SEC came to exactly the opposite con-
clusion in adopting Rule 16b-3(d). After notice and comment,
the SEC determined that board-approved transactions between
an issuer and an insider were unlikely to result in speculative
abuse, and that the risk of such abuse was therefore tolerable.
As amicus curiae, the SEC adds that in considering Rule 16b-
3(d), it found that insider-issuer transactions did not pose an
intolerably great risk of abuse because “[b]oard or shareholder
approval will remove the timing of the acquisition from the
control of any one insider and also tend to assure that the
acquisition is for a legitimate corporate purpose.” See also
Gryl v. Shire Pharm. Group PLC, 298 F.3d 136, 145-46 (2d
Cir. 2002).

  Yet Dreiling claims to refute this conclusion by identifying
empirical evidence that Rule 16b-3(d) immunizes transactions
9578              DREILING v. AMERICAN EXPRESS CO.
for which the risk of abuse is intolerable. As evidence, he
cites a single article that shares his general concern with cer-
tain insider-issuer transactions8 but explicitly says that § 16(b)
and Rule 16b-3(d) are “of limited relevance to the award of
executive stock options.”9 Thus, Dreiling offers nothing sub-
stantive to challenge the SEC’s analysis and conclusion that
board-approved, insider-issuer trades do not give rise to an
intolerable level of speculative abuse. See 61 Fed. Reg. at
30,377 (“Based on its experience with the Section 16 rules,
the Commission is persuaded that transactions between the
issuer and its officers and directors . . . that satisfy other
objective gate-keeping conditions[ ] are not vehicles for the
speculative abuse that section 16(b) was designed to pre-
vent.”); id. (“Generally, these transactions do not appear to
present the same opportunities for insider profit on the basis
of non-public information as do market transactions by offi-
cers and directors.”).

   Dreiling also argues that certain hypotheticals show that
Rule 16b-3(d) shields abusive transactions. He posits a set of
imagined, though plausible, facts leading to TRS’s use of
inside information in selling InfoSpace shares, such as a quick
sale to the public market once TRS learns that InfoSpace’s
stock is inflated. Dreiling also identifies a hypothetical
described in Levy v. Sterling Holding Co., 314 F.3d 106, 124
(3d Cir. 2002), in which insiders of a closely-held corporation
grant themselves options on the cheap and sell quickly after
an initial public offering. Once again, this argument presumes
the only legitimate transaction is a zero-risk transaction.
  8
     Iman Anabtawi, Secret Compensation, 82 N.C. L. REV. 835, 852-56
(2004).
   9
     Id. at 860 n.113 (“Because, under Rule 16b-3(d), a stock option grant
made by an independent compensation committee is generally exempt
from section 16(b), and because section 16(b) reaches only transactions
that occur within six months of each other, it is of limited relevance to the
award of executive stock options.”).
                  DREILING v. AMERICAN EXPRESS CO.                    9579
   Without citing any authority, Dreiling argues that a transac-
tion for which there is the mere possibility of abuse may not
be exempted by a SEC-promulgated rule. But such hypotheti-
cal concerns cannot outweigh the SEC’s 60-year experience
with rules interpreting § 16(b), 61 Fed. Reg. at 30,377, and
promulgation of Rule 16b-3(d) based on a full notice-and
comment process, resulting in a “detailed and reasoned” con-
sideration of the rule.10 See Chevron, 467 U.S. at 865. We
may not invalidate the rule simply because Dreiling questions
the policy underpinnings of Rule 16b-3(d). Id. at 866 (“When
a challenge to an agency construction of a statutory provision,
fairly conceptualized, really centers on the wisdom of the
agency’s policy, rather than whether it is a reasonable choice
within a gap left open by Congress, the challenge must fail.”).

   Finally, Dreiling seeks to invalidate Rule 16b-d(3) because
the SEC justified the rule based on policy concerns unrelated
to speculative abuse. Dreiling presents two variants of this
argument. He first contends that regulatory simplicity—one
reason the SEC revised Rule 16b-d(3) in 1996—by itself can-
not justify exempting all board-approved, insider-issuer trans-
actions from § 16(b) liability. In his view, the SEC in effect
“took the position that abusive short-swing trading must be
tolerated in the name of easing compliance.”

   But the SEC did not rely solely on administrative simplicity
in amending the rule. As we have explained, the SEC deter-
mined that the transactions covered by Rule 16b-3(d) were
“not vehicles for the speculative abuse that section 16(b) was
designed to prevent.” 61 Fed. Reg. at 30,377. Thus the SEC
   10
      Indeed, the SEC acknowledged in its amicus brief the possibility of
abuse in the hypotheticals described by Dreiling. A “dominant insider
[may be] privy to insider information that he conceals from the board or
shareholders in obtaining approval for a transaction.” But, in adopting
Rule 16b-3(d), the SEC determined that exempted transactions “did not
pose a significant risk of abusive insider trading with less informed inves-
tors.” (Emphasis added.)
9580           DREILING v. AMERICAN EXPRESS CO.
was surely entitled to consider administrative simplicity or
flexibility as an additional basis for revising Rule 16b-3(d).

   Dreiling also argues that, in amending Rule 16b-3(d), the
SEC wrongly assumed that speculative abuse caused by the
exempted transactions could be remedied by state laws. It is
true that the mere existence of other legal remedies for insider
trading is irrelevant to determining whether a particular class
of transactions should be exempt from § 16(b) liability. See
Foremost-McKesson, 423 U.S. at 255 (“Section 16(b)’s
scope, of course, is not affected by whether alternative sanc-
tions might inhibit the abuse of inside information.”). Had the
SEC justified Rule 16b-3(d) solely on the basis that state laws
could fill the enforcement lacuna left by the rule, it would be
invalid.

   But, again, this argument does not stand on its own. The
SEC did not justify Rule 16b-3(d) solely on the grounds that
state laws could replace § 16(b) as the remedy for short-swing
insider trading. Rather, the transactions covered by Rule 16b-
3(d) were ones the SEC determined did not give rise to an
intolerable risk of speculative abuse. The SEC also noted that
state laws on fiduciary duty and self-dealing might help rem-
edy any residual speculative abuse that did occur. See 61 Fed.
Reg. at 30,381. The SEC should not be penalized for explain-
ing multiple reasons why the rule makes sense.

   [8] Congress delegated to the SEC the express authority “to
elucidate a specific provision of [§ 16(b)] by regulation.”
Chevron, 467 U.S. at 844. Considering the careful review
afforded by the SEC, including its analysis of the comments
and decades of experiences in the securities arena, we hold
that Rule 16b-3(d) is not arbitrary, capricious, or contrary to
§ 16(b), and is a valid exercise of SEC authority under
§ 16(b).

III.   RULE 16b-3(d)   AND   DIRECTORS BY DEPUTIZATION

  [9] Although Rule 16b-3(d) does not, on its face, include
“directors by deputization,” the SEC interprets the rule to
               DREILING v. AMERICAN EXPRESS CO.             9581
include such directors. Dreiling challenges this interpretation
as the SEC overstepping its authority. Alternatively, Dreiling,
supported by the SEC as amicus, argues that Rule 16b-3(d)
does not apply to a director by deputization if the board did
not know of the deputization when it approved the transac-
tion.

   Before analyzing the merits of these claims, we pause to
define the term “director by deputization.” The Supreme
Court has recognized that a corporation may be a virtual
director, and thus an insider for purposes of § 16(b) liability,
by deputizing a natural person to perform its duties on the
board. Blau v. Lehman, 368 U.S. 403, 410 (1962) (“Lehman
Brothers would be a ‘director’ of Tide Water, if as petitioner’s
complaint charged Lehman actually functioned as a director
through Thomas, who had been deputized by Lehman to per-
form a director’s duties not for himself but for Lehman.”).
Whether a company is a director by deputization is “a ques-
tion of fact to be settled case by case and not a conclusion of
law.” Feder v. Martin Marietta Corp., 406 F.2d 260, 263 (2d
Cir. 1969); accord Blau, 368 U.S. at 408-09.

   [10] A company may be a director by deputization without
intending to be and without acknowledging that a deputy rep-
resents its interests on the issuer’s board. See Feder, 406 F.2d
at 265 (“[A] person . . . could act as a deputy . . . even in the
absence of factors indicating an intention or belief on the part
of both companies that he was so acting.”). In light of these
cases, the SEC has recognized the doctrine of directors by
deputization but has left it to courts to decide how to apply
§ 16(b), and rules promulgated under it, to such directors. See
Ownership Reports and Trading By Officers, Directors and
Principal Securities Holders, SEC Release No. 34-26333, 53
Fed. Reg. 49,997 (proposed Dec. 2, 1988) (recognizing doc-
trine of directors by deputization but noting that the SEC
“does not propose to codify case law relating to deputiza-
tion.”).
9582           DREILING v. AMERICAN EXPRESS CO.
A.     GENERAL APPLICATION OF RULE 16b-3(d)       TO   DIRECTORS
       BYDEPUTIZATION

   Since directors by deputization are subject to § 16(b) liabil-
ity, it should follow, without controversy, that they may also
seek the protection of Rule 16b-3(d). Dreiling nevertheless
insists that directors by deputization are categorically barred
from invoking Rule 16b-3(d). He reaches this conclusion by
asserting that the sole purpose of Rule 16b-3(d) is to immu-
nize issuer-insider transactions that compensate individual
directors or officers for their work. Because most directors by
deputization are corporate entities, according to this logic, any
stock grants they receive would not be compensatory.

   [11] Dreiling bases his understanding of the post-1996 revi-
sion of Rule 16b-3(d) on the SEC’s pre-revision rationale for
the rule. It is true that before 1996, the rule applied only to
compensatory transactions. But the current incarnation of
Rule 16b-3(d) explicitly covers non-compensatory insider-
issuer transactions. 17 C.F.R. § 240.16b-3(d) (exempting eli-
gible insider-issuer transactions “whether or not intended for
a compensatory or other particular purpose”). The SEC
adopted the 1996 revision with the express purpose of immu-
nizing non-compensatory transactions. See 61 Fed. Reg. at
30,377-78 (indicating that the 1996 revision to Rule 16b-3(d)
was intended to exempt compensatory stock grants to direc-
tors or officers as well as “[o]ther acquisitions by an officer
or director from the issuer, including grants, awards and
participant-directed transactions,” if approved by the board of
directors or a majority of shareholders). To make matters dou-
bly clear, the SEC squarely takes the position in its amicus
brief that Rule 16b-3(d) encompasses directors by deputiza-
tion: “[W]hen Rule 16b-3(d) was adopted the Commission
contemplated its application to all acquisitions from an issuer
that met the objective gatekeeping requirements set forth in
the rule (such as board or shareholder approval), regardless of
whether the acquisitions have a compensatory purpose or
not.” We thus reject Dreiling’s argument because it conflicts
                 DREILING v. AMERICAN EXPRESS CO.                    9583
with the plain text of the 1996 version of Rule 16b-3(d) as
well as the SEC’s controlling interpretation of it.11 Thus,
directors by deputization are entitled to seek the protection of
Rule 16b-3(d) to the same extent, and on the same terms, as
an individual director or officer.

B.   SPECIFIC APPLICATION OF RULE 16b-3(d)              TO   TRS

   [12] The remaining issue to be decided is whether Rule
16b-3(d) exempts TRS under the facts alleged by Dreiling.
According to Dreiling’s allegations, the InfoSpace board did
not approve of the issuance of shares to TRS with the under-
standing that TRS was an insider as a director by deputization
through David House. Dreiling cites a letter InfoSpace’s
counsel sent to Dreiling that said that House “did not in any
way represent [TRS]” and, thus, was not a director by deput-
ization. For purposes of TRS’s motion to dismiss for failure
to state a claim, we accept as true the allegation that the Info-
Space board did not approve the transaction in question
knowing that TRS was a director by deputization. See Zim-
merman v. Oakland, 255 F.3d 734, 737 (9th Cir. 2001) (“We
review dismissals under Rule 12(b)(6) de novo, accepting as
true all well-pleaded allegations of fact in the complaint and
construing them in the light most favorable to the plaintiffs.”).
We agree with Dreiling and the SEC that, on the facts alleged,
TRS has not met the requirements of Rule 16b-3(d), and that
Dreiling’s complaint should not have been dismissed.
   11
      The SEC’s interpretation of its own regulation is controlling unless
plainly erroneous or inconsistent with the regulation. See Auer v. Robbins,
519 U.S. 452, 461 (1997). This principle applies even if the SEC’s inter-
pretation is presented in the form of an amicus brief. Id. at 462
(“Petitioners complain that the Secretary’s interpretation comes to us in
the form of a legal brief; but that does not, in the circumstances of this
case, make it unworthy of deference. The Secretary’s position is in no
sense a ‘post hoc rationalizatio[n]’ advanced by an agency seeking to
defend past agency action against attack. There is simply no reason to sus-
pect that the interpretation does not reflect the agency’s fair and consid-
ered judgment on the matter in question.”) (internal citation omitted).
9584              DREILING v. AMERICAN EXPRESS CO.
   [13] As we indicated already, Rule 16b-3(d) applies to
directors by deputization on the same terms as it would apply
to any other § 16(b) insider. Thus a director by deputization
must fulfill the same requirements of Rule 16b-3(d) to receive
its protection. Rule 16b-3(d) requires an issuer board to
approve the specific insider-issuer transaction for which the
exemption is sought. See 17 C.F.R. § 240.16b-3 interpretive
note 3 (“The approval condition[ ] of [Rule 16b-3(d)(1)]
require[s] the approval of each specific transaction, and [is]
not satisfied by approval of a plan in its entirety . . . .”); 61
Fed. Reg. at 30,381 (“When the rule requires ‘Non-Employee
Director,’ full board or shareholder approval, the Commission
intends that the approval relate to specific transactions rather
than the plan in its entirety.”). As the SEC observes in its
amicus brief, “[i]t is . . . imperative, for the purposes of Rule
16b-3(d), that the members of any corporate board know
when another person serving on the same board is deputized
by another person or entity to carry out its interests.”12 If a
board does not know that one of its directors is a deputy for
another corporation, and thus a potential conduit for inside
information, the board “would have no reason for special vigi-
lance . . . and . . . would not effectively serve its gatekeeping
function and ensure accountability.”13

   [14] It follows that Rule 16b-3(d) does not exempt TRS if
it is an undisclosed or secret director by deputization. Logi-
cally speaking, a board cannot approve of a specific insider-
  12
      TRS argues that the position the SEC takes in its amicus brief clashes
with its previous understanding of the rule, something the SEC can only
modify through formal rulemaking. Despite this attack, TRS offers up
nothing to show that the SEC articulated a previous position on this point.
   13
      TRS attempts to side step the knowledge requirement, arguing that
even if the board did not know that TRS was a director by deputization,
the exemption still applies because other laws exists to remedy the inside
transaction, including the reporting requirements under § 13(d) and
§ 13(g) of the Williams Act, or Rule 10b-5 liability. Again, the mere fact
that another remedy exists to cure the same ill suggests nothing about the
scope of § 16(b) or Rule 16b-3. See Foremost-McKesson, 423 U.S. at 255.
                 DREILING v. AMERICAN EXPRESS CO.                    9585
issuer transaction without knowing that an insider was
involved in the transaction.14 As alleged by Dreiling, the Info-
Space board did not approve of the grant of its shares to TRS
knowing that TRS was a director by deputization for purposes
of the insider-issuer exemption. To be sure, the board
approved of the merger with Prio and the concomitant issu-
ance of InfoSpace stock to Prio shareholders, of which TRS
was just one. But an open question, to be resolved on remand,
is whether the board approved the transaction with the under-
standing that TRS was an insider.

   Still, TRS argues that it must be exempt under Rule 16b-
3(d) because to hold otherwise would require us to create a
judicial exception to the rule and illegitimately “usurp” the
SEC’s regulatory function. United States v. Willfong, 274
F.3d 1297, 1302 (9th Cir. 2001). We are neither modifying
the rule nor “usurping” the SEC’s authority. All we are doing
at this stage of litigation is applying the requirements of Rule
16b-3(d), as written, to the facts alleged by Dreiling.

   [15] In sum, we uphold the SEC’s authority to adopt Rule
16b-3(d). We give “controlling weight” to the SEC’s interpre-
tation that the rule covers directors by deputization and that
specific board approval of an insider-issuer transactions must
be done with knowledge of the director’s status. We reverse
the district court’s grant of TRS’s motion to dismiss because
Rule 16b-3(d) does not, on the facts alleged, shield TRS from
liability under § 16(b). Whether TRS was a director by deput-
ization, and, if so, whether InfoSpace, in approving the gen-
eral Prio-InfoSpace transaction, intended to approve a specific
insider-issuer transaction with respect to TRS, are among the
issues to be resolved on remand.
  14
     TRS argues that even if it were a director by deputization, the Info-
Space board was aware of this, knowing that House was a TRS officer.
This approach still begs the question of whether the InfoSpace board spe-
cifically approved of the grant of InfoSpace stock to TRS as an insider for
purposes of Rule 16b-3(d).
9586         DREILING v. AMERICAN EXPRESS CO.
  REVERSED and REMANDED.

  Each party shall bear its own costs on appeal.
