ions period of five years for private suits by contemporaneous traders against purchasers or sellers who violate rules regarding trades while in possession of material, nonpublic information. Further, the SEC is not subject to any limitations period in civil enforcement actions.
D.SECTION 16 OF THE 1934 ACT - Section 16 concerns purchases followed by sales, or sales followed by purchases, by certain insiders, within a six-month period.
1.FIRMS AND SECURITIES AFFECTED UNDER SECTION 16 - Section 16 applies to those firms and securities that must be registered under section 12 of the 1934 act.
a) Reason - 16 (a) references registered securities under S12; S12 (a) and 12 (g) create the registration requirement for securities; S12 (g) creates an asset ($ 1 mln total) and distribution (500 to 700 depending on timing); 16 (b) references "such" officers, etc., which refers to sub (a)
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). p> 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&#...
