Short swing: Difference between revisions
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{{Orphan|date=November 2006}} |
{{Orphan|date=November 2006}} |
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A '''short swing''' rule restricts [[officer]]s and insiders from making short-term profits at the expense of the firm. It is a prophylactic measure intended to guard against so-called insider trading. See William A. Klein et al., Business Associations, 511 (6th ed. Foundation Press)(2006). The rule mandates that if an officer, director, or any shareholder holding more than 10% of outstanding shares of a [[publicly traded]] company makes a profit on a transaction with respect to the company's stock during a given six month period, that officer, director, or shareholder must pay the difference back to the company. |
A '''short swing''' rule restricts [[officer]]s and insiders from making short-term profits at the expense of the firm. It is a prophylactic measure intended to guard against so-called insider trading. See William A. Klein et al., Business Associations, 511 (6th ed. Foundation Press)(2006). The rule mandates that if an officer, director, or any shareholder holding more than 10% of outstanding shares of a [[publicly traded]] company makes a profit on a transaction with respect to the company's stock during a given six month period, that officer, director, or shareholder must pay the difference back to the company. |
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As stated by a federal circuit court of appeals, "In order to achieve its goals [of curbing the evils of insider trading], Congress chose a relatively arbitrary rule capable of easy administration. The objective standard of Section 16(b) imposes strict liability upon substantially all transactions occurring within the statutory time period, regardless of the intent of the insider or the existence of actual speculation. This approach maximized the ability of the rule to eradicate speculative abuses by reducing difficulties in proof. Such arbitrary and sweeping coverage was deemed necessary to insure the optimum prophylactic effect." Bershad v. McDonough, 428 F.2d 693. |
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The statutory text of the rule can be found at section 16(b) of the Securities Exchange Act of 1934, codified at 15 U.S.C. section 78p(b). |
The statutory text of the rule can be found at section 16(b) of the Securities Exchange Act of 1934, codified at 15 U.S.C. section 78p(b). |
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Revision as of 22:44, 16 October 2008
A short swing rule restricts officers and insiders from making short-term profits at the expense of the firm. It is a prophylactic measure intended to guard against so-called insider trading. See William A. Klein et al., Business Associations, 511 (6th ed. Foundation Press)(2006). The rule mandates that if an officer, director, or any shareholder holding more than 10% of outstanding shares of a publicly traded company makes a profit on a transaction with respect to the company's stock during a given six month period, that officer, director, or shareholder must pay the difference back to the company.
As stated by a federal circuit court of appeals, "In order to achieve its goals [of curbing the evils of insider trading], Congress chose a relatively arbitrary rule capable of easy administration. The objective standard of Section 16(b) imposes strict liability upon substantially all transactions occurring within the statutory time period, regardless of the intent of the insider or the existence of actual speculation. This approach maximized the ability of the rule to eradicate speculative abuses by reducing difficulties in proof. Such arbitrary and sweeping coverage was deemed necessary to insure the optimum prophylactic effect." Bershad v. McDonough, 428 F.2d 693.
The statutory text of the rule can be found at section 16(b) of the Securities Exchange Act of 1934, codified at 15 U.S.C. section 78p(b).
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