Second Circuit Affirms that Short Swing Liability Only Applies to Same Equity Security Second Circuit Affirms that Short Swing Liability Only Applies to Same Equity Security

Second Circuit Affirms that Short Swing Liability Only Applies to Same Equity Security

The Second Circuit rejected the assertion that Section 16(B)’s strict liability short swing provision applies to two separate securities. The panel held that the purchase and sale of different equities did not fall within the provision because the text specifically refers to a “singular equity security.”
 
At issue was Discovery Communications, Inc’s, Director’s sale of Discovery series C stock and purchase of series A stock within six months. In disallowing short swing liability, the Court rejected that the equities were “economically equivalent” merely because they were two nonconvertible securities whose prices fluctuated together. The Court acknowledged that the Plaintiff’s argument that the two securities are sufficiently similar to be paired together for Section 16(B) was plausible, but declined to adopt that position in the absence of SEC guidance.
 
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This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
 
 
 
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