Thursday, November 7, 2013

Feder v. Frost case brief

Feder v. Frost case brief summary
220 F.3d 29 (2000)

CASE SYNOPSIS
Appellant sought review of a judgment from the United States District Court for the Southern District of New York, which dismissed his complaint against appellee shareholder and appellee partnership that alleged a violation of § 16(b) of the Securities Exchange Act of 1934, 15 U.S.C.S.§ 78p(b).

CASE FACTS
Appellant brought a complaint under § 16(b) of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78p(b), alleging that appellee shareholder was a statutory insider of one corporation and that he and appellee partnership, a firm controlled by appellee shareholder, were controlling shareholders of another corporation. Appellant claimed that appellees should disgorge short-swing profits as a result of sale transactions between the two corporations.

DISCUSSION
  • The district court's dismissal of appellant's complaint was reversed. 
  • The court held that the definition in Rule 16a-1(a)(2), 17 C.F.R. § 240.16a-1(a)(2), of "beneficial ownership" clearly encompassed the facts in the complaint, which alleged purchases and sales of stock of one corporation by appellees within a period of less than six months that resulted in a profit to the other corporation. 
  • Given appellees' ownership of stock in the one corporation, appellees had an indirect pecuniary interest in the other because it shared indirectly in the profits through an increase in the value of their holdings.

CONCLUSION

The district court's dismissal of appellant's complaint that alleged insider short-swing trading under the Securities Exchange Act of 1934 was reversed, because the complaint sufficiently alleged beneficial ownership of the stock at issue.

Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials

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