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b)Note--trading in all of a corp’s equity securities is subject to section 16 if any class of its securities is registered under section 12.
2.DISCLOSURE REQUIREMENT--Section 16(a) requires every beneficial owner of more than 10% of the registered stock and directors and officers of the issuing corp to file periodic reports with the SEC showing their holdings and any changes in their holdings.
a)Who is an Officer (16a-1f)--issuer’s president, principal financial director, principal accounting officer, any vice-president of the issuer in charge of a principal business unit, any other officer who performs similar policy-making functions for the issuer.
3.LIABILITY--to prevent the unfair use of information, section 16(b) allows a corp to recover profits made by an officer, dir, or more-than-10% beneficial owner on the purchase and sale or sale and purchase of its securities within a six-month period.
a)Coverage--Section 16(b) does NOT cover all insider trading and is NOT limited to trades based on inside info. The critical element is short-swing trading by officers, dirs, and more-than-10% beneficial owners.
1)Note--beneficial owner must own 10% or more BOTH at he time of sale and purchase to be liable under 16(b).
b)Calculation of short-swing profit--the profit recoverable is the difference between the price of the stock sold and the price of the stock purchased within six month before or after the sale.
1)Multiple transactions--if there is more than one purchase or sale transaction within the six-month period, the transactions are paired by matching the highest sale price with the lowest purchase price, the next highest price with the next lowest price, etc. a court can look six month forward or backward from any sale to find a purchase, or from any purchase to find a sale
c)Who May Recover--the profit belongs to the corp alone. Although not a typical derivative action, if the corp fails to sue after a demand by a sh, the sh may sue on the corp’s behalf. The cause of action is federal, so there is no posting of security requirement, and no contemporaneous sh requirement. Remedy:
1)All sales and purchases within 6 months are included;
2)Damages calculated as to maximize the gain to he company;
3)Match highest sale price against lowest purchase price within relevant period; continue until you can go no further.
d)Insiders--insiders are officers (named officers and those persons functioning as officers), dirs (actually serving or who authorized deputization of another), and beneficial owners of more than 10% of the shares. Insider status for officers and dirs is determined at the time they made a purchase or sale. Transactions made before taking office is NOT within section 16(b), but those made after leaving office are subject to the statute if they can be matched with a transaction made while in office. Liability is imposed on a beneficial owner only if he owned more than 10% of the shares at the time of both the purchase and sale.
e)”Purchase or Sale”--this includes any purchase of stock. Unorthodox transactions that result in the acquisition or deposition of stock (e.g., merger for stock, redemption of stock) are also purchases and sales.
E.SECTION 16(B) COMPARED TO RULE 10B-5:
a)Covered Securities--Section 16(b) applies to securities registered under the 1934 act; rule 10b-5 applies to all securities.
b)Inside Information--Section 16(b) allows recovery for short-swing profits regardless of whether they are attributable to misrepresentations or inside info; rule 10b-5 recovery is available only where there was a misrepresentation or a trade based on inside info.
c)Plaintiff--recovery under section 16(b) belongs to the corp, while rule 10b-5 recovery belongs to the injured purchaser or seller.
d)Overlapping Liability--it is possible that insiders who make short-swing profits by use of inside info could be liable under both section 16(b) and rule 10b-5.
F.COMMON LAW LIABILITY FOR INSIDER TRADING--insider trading constitutes breach of fiduciary duties owed to the corp, so the corp can recover profits made from insider trading
a)Common Law Liability Compared To Section 16(b) Liability--both common law and section 16(b) liability run against insiders and in favor of the corp. However, unlike section 16(b), the common law theory applies to all corps (not just those with registered securities), recovery can be had against any corporate insider, the purchase and sale is NOT limited by a six-month period, and the transaction must be based on the inside info.
b)Common Law Liability Compared to Rule 10b-5 Liability--the theories of recovery are similar except that under the common law recovery runs to the corp (not to the injured purchaser or seller), there is no purchaser or seller requirement, and noninsiders (tippees) have not yet been held liable.
VII.RIGHTS OF SHAREHOLDERS
Реферат опубликован: 13/03/2009