Second Circuit Holds the Short-Swing Profit Rule Inapplicable to Insider's Purchase and Sale of Different Types of Stock in the Same Company

On January 7, 2013, the Second Circuit ruled that Section 16(b) of the Securities Exchange Act of 1934 (the “short-swing profit rule”) does not require insiders to disgorge profits earned from buying and selling shares of different types of stock in the same company within six months. The court explained that transactions in stocks that are separately traded, nonconvertible and have different voting rights cannot be “paired” under this provision. The attached Alert Memo focuses on the court’s characterization of § 16(b) as a blunt, mechanical rule that prioritizes ease of enforcement over maximum deterrence and its invitation to the SEC to consider adopting a more flexible interpretation.