On January 7, 2013, the Second Circuit Court of Appeals ruled that Section 16(b) of the Securities Exchange Act of 1934, which provides for the disgorgement of profits that corporate insiders realize “from any purchase and sale, or any sale and purchase, of any equity security” of the corporate issuer within any period of less than six months (the “short-swing profit rule”), does not apply to a corporate insider’s purchase and sale of shares of different types of stock in the same company where those securities are separately traded, nonconvertible stocks that have different voting rights. Gibbons v. Malone, No. 11 Civ. 3620, 2013 U.S. App. LEXIS 398 (2d Cir. Jan. 7, 2013). Throughout its analysis, the court characterized § 16(b) as a blunt, mechanical rule that prioritizes ease of enforcement over maximum deterrence. Acknowledging the policy reasons for a more flexible interpretation of the rule, the Second Circuit invited the SEC to consider interpreting the short-swing profit rule to cover “similar” equity securities.
Posts Tagged ‘Lewis Liman’
On August 8, 2012, the Second Circuit issued an important decision in Securities and Exchange Commission v. Apuzzo, 2012 WL 3194303, clarifying the test the SEC must meet to establish aiding and abetting liability for a securities law violation. There previously had been uncertainty in the Second Circuit whether the SEC must prove that the aider and abettor proximately caused the harm on which the primary violation was based. In Apuzzo, the Second Circuit made clear that “proximate cause” was not an element of the aiding and abetting violation and that, to charge someone with aiding and abetting, the SEC need allege and prove only that the aider and abettor associated himself with the venture in some way, participated in the venture as in something he wished to bring about, and sought by his action to make the venture succeed. The Court of Appeals also stated that proof of a high degree of knowledge of a primary violation may lessen the SEC’s burden in proving substantial assistance.