Second Circuit Provides Clarity on the Treatment of PVFCs Under Section 16

The Second Circuit Court of Appeals’ 2014 ruling in Chechele v. Sperling addressed an issue of first impression among the Courts of Appeals regarding the application of the short-swing trading rules of the Securities Exchange Act of 1934 to prepaid variable forward contracts. It is the most recent attempt by the courts to fill in gaps in the analytical framework governing the application of Section 16 to complex derivatives.

The case is an important decision that should mitigate concern over the risk of a deemed purchase transaction upon settlement and termination of certain complex derivative transactions.