Articles By Topic
By Topic: Section 16
From Vol. 10 No.13 (Mar. 30, 2017)
Court to Rule on Novel Issue of Insider Trading Law in Case Against Leon Cooperman and Omega Advisors
In September 2016, the SEC commenced a civil enforcement action against hedge fund manager Leon G. Cooperman and his investment advisory firm, Omega Advisors, Inc. (Omega), charging that Cooperman received and traded on material nonpublic information (MNPI) and committed more than 40 violations of the beneficial ownership reporting requirements under federal securities laws. See “Alleging Dozens of Violations, SEC Charges Leon Cooperman and Omega Advisors With Insider Trading and Failing to Make Regulatory Filings” (Sep. 29, 2016). In response to the defendants’ motion to dismiss the SEC’s complaint for failure to state a claim for insider trading and improper venue for the reporting violations, the U.S. District Court for the Eastern District of Pennsylvania (Court) recently dismissed the reporting violation claims but ruled that the SEC’s insider trading claims could proceed. In its Memorandum accompanying the Order, the Court addressed a novel issue as to whether a defendant could be held liable under the misappropriation theory of insider trading where he entered into an explicit agreement not to trade after he received MNPI but before he traded on it. This article summarizes the Court’s Memorandum. For more on the misappropriation theory of insider trading, see “How Can Hedge Fund Managers Apply the Law of Insider Trading to Address Hedge Fund Industry-Specific Insider Trading Risks? (Part Two of Two)” (Aug. 15, 2013); and “When Does Talking to Corporate Insiders or Advisors Cross the Line Into Tipper or Tippee Liability Under the Misappropriation Theory of Insider Trading?” (Jan. 10, 2013).Read Full Article …
From Vol. 6 No.4 (Jan. 24, 2013)
When Can Short-Swing Trading in Different Types of Equity Securities of the Same Issuer Trigger Section 16(b) Liability for Hedge Funds Considered to Be Section 16 Insiders?
A federal appeals court recently considered whether Section 16(b) of the Securities Exchange Act of 1934 applies to transactions in which a Section 16 insider buys or sells shares of one type of equity security of an issuer and engages in an opposite-way transaction in another type of equity security of the same issuer within six months of the initial purchase or sale. If Section 16(b) applies, shareholders can initiate actions to demand disgorgement of illicit profits from a Section 16 insider without demonstrating scienter. See “Establishing, Maintaining and Exiting a Minority Equity Position: U.S. Securities Law Considerations for Hedge Funds,” The Hedge Fund Law Report, Vol. 2, No. 2 (Jan. 15, 2009). While the case did not involve a hedge fund, it will nonetheless impact the securities trading of most Section 16 insiders, which include, among others, hedge funds that (1) beneficially own ten percent or more of a class of a public issuer’s equity securities or (2) beneficially own less than ten percent of a class of a public issuer’s equity securities if the hedge fund is a member of a “group,” defined as two or more persons that agree to act together for the purpose of acquiring, holding, voting or disposing of an issuer’s equity securities. See “Second Circuit Decision Sends CSX and Hedge Fund Suitors TCI and 3G Back to District Court to Examine When Funds Formed a ‘Group’ to Acquire CSX Stock,” The Hedge Fund Law Report, Vol. 4, No. 25 (Jul. 27, 2011). The decision will impact the investment activities of, among others, many activist hedge funds and their managers. For more on activist strategies, see “Lawsuits and Letters: TPG-Axon’s Playbook for Unseating a Recalcitrant and Underperforming Board of Directors,” The Hedge Fund Law Report, Vol. 6, No. 2 (Jan. 10, 2013); and “Dealing with Mr. Big: Recent Developments in Transactions Involving Controlling Shareholders,” The Hedge Fund Law Report, Vol. 3, No. 4 (Jan. 27, 2010). This article describes the factual background and the court’s analysis and holding in the case. The article also discusses the potential impact of the case on hedge funds and their managers deemed to be Section 16 insiders.Read Full Article …