Section 16b

Question 1

Section 16b

Answer 1

1. rule aimed at speculation by directors, officers, and >10% SHs
2. strict liability
3. §16B: federal law providing for recovery by the corporation of profits gained by certain insiders from buying and selling the company’s stock
4. claim for the corporation, brought by a derivative suit

Question 2

Possible defendants

Answer 2

1. directors (either when buying or selling)
2. officer (either when she
   buying or selling)
3. SH who owned over 10% both when the SH bought and sold
4. i.e. can go after an officer or director when they buy or sell

Question 3

Applicability

Answer 3

1. only applies to reporting corporations, meaning: (public company)
   i. listed on a national exchange, or
   ii. at least 2,000 SHs (or 500 non-accredited shareholders) and $10M in assets
   a. accredited investor: usually institutional investors or a wealthy individuals
2. covers short-swing trading
   i. applies if there is buying and selling within any six-month period where the buy is lower than the sale
   ii. order of buy or sell does not matter, just match a low buy with high sale
   iii. no fraud or inside information is needed

Question 4

Effect

Answer 4

1. all “profits” from short-swing trading is recoverable by the corporation
   i. profits: if within a six month period before or after any sale, there was a purchase at a lower price, then there is a profit
2. note: only consider the largest number of shares both bought and sold in the 6 mnth period
3. ex. D, director of A Corp., bought 700 shares of A at $10/share in 2007. In Jan 2012, D sells the 700 shares at $6 a share. In Mar 2012, D bought 200 A shares for $1 a share
   • within a 6 month period, with respect to the 200 shares, D sold for $6 and D bought for $1, meaning a sale for $1200 and purchase for $200
   • within a 6 month period, with respect to the other 500 shares, there was only a sale, so no §16B
   • D owes $1000 under §16B total
   • note: the answer is not $4000 because you only consider the 200 shares not the full 700 shares

Question 5

Bar most important topics

Answer 5

1. fiduciary duty of loyalty
2. fiduciary duty of care
3. derivative lawsuit requirements
4. piercing the corporate veil
5. forming a corporation
6. pre-incorporation contracts (promotor liability)