Precise analysis of SEC Rule 240.16 b-3 --Transactions between an issuer and its officers or directors.

Immediately below is the Title of SEC Rule 240. 16 b-3 followed by paragraph 16 b-3(a):


240.16b-3 Transactions between an issuer and its officers or directors.


(a) General. A transaction between the issuer (including an employee benefit plan sponsored by the issuer) and an officer or director of the issuer that involves issuer equity securities shall be exempt from section 16(b) of the Act if the transaction satisfies the applicable conditions set forth in this section.

------------

Lets analyze exactly what the above says:

The title refers to transactions between an issuer and its officers and directors. And (a) General explains the necessary requirements for an exemption from Section 16(a). If the transaction is not between the issuer and an officer of director, there can be no exemption  from section 16 (b) via SEC Rule 16 b-3.

There are two types of transactions that are between an issuer and its officers or directors with no intermediaries.

i) The first type is a sale transaction where the officer or director sells directly to the issuer with no intermediaries.

ii) the second type is a purchase transaction where the officer or director buys directly from the issuer with no intermediaries.

a) General says that both a sale or a purchase  that is between the officer or director and the issuer, which involves issuer equity securities, shall be exempt from Section 16 (b) of the Act if the transaction satisfies the applicable conditions set forth in this section.

-------------------

With the above in mind, we turn to paragraph 

(d)Acquisitions from the issuer. Any transaction, other than a Discretionary Transaction, involving an acquisition from the issuer (including without limitation a grant or award), whether or not intended for a compensatory or other particular purpose, shall be exempt if:

 Certain approval conditions are satisfied.

----------------

Analyzing (d) Acquisitions from the issuer: above, we find that  it says " Any transaction, involving an acquisition from the issue shall be exempt if it satisfies the approval conditions.

It is certain that (d) Acquisitions from the issuer above incorporates the requirement that the transaction be between the officer or director and the issuer and incorporates the requirement that the transaction involve issuer equity securities.

But apparently the alleged experts called Romeo and Dye, who represent executives and try to interpret Section 16 (b) and the rules issued by the SEC, are trying to expand the exemptions. Romeo and Dye want to omit the requirement that the transaction be between the officer or director and the issuer and to not incorporate the requirement that the transaction involves issuer equity securities.

Also, in the SEC Amicus Curiae Brief in Dreiling v. American Express case on Page 11 in the Ninth Circuit No. 35715. April 5, 2005, the sentence below appears:

 
"Rule 16 b-3(d) is available only to exempt transactions between an officer or director and the issuer. It applies in a limited type of transaction in which the risk of abuse is inherently limited."


 
On page 15 of the Dreiling v. American Express we find in the SEC Amicus Curiae Brief, the paragraph below:


"The Commission, however, was not talking about the application of state fiduciary law to transactions between insiders and shareholders. It was talking about dealings between insiders and issuers, since that is all Rule 16 b-3 exempts".

On page 1399 of the Romeo and Dye Treatise on Rule 16 b-3, we find the sentences below:

 

[1] Transactions Covered

    [a] Broad Range

Rule 16 b-3(d) indicates that the rule is available to exempt any acquisition by an officer or director from the issuer, other than a Discretionary Transaction, that satisfies one of the alternative methods of exemption outlined in the rule...... And it is not necessary for the transaction to be made directly by an officer or director with the issuer, because indirect transactions through another party are permissible.

Romeo and Dye refer to the American Bar Association SEC No Action letter of February 10, 1999, as authority, notwithstanding the fact that the SEC Committee stated in an Amicus Curiae Brief in the Gryl v. Shire Pharma case, that the SEC can not create No Acton letters relating to Section 16 (b) enforcement. And the Second Circuit Court of Appeals in Gryl v. Shire accepted the SEC opinion and ruled that No Action letters can not be created in Section 16 (b) enforcement actions.

The so called No Action letter requested by the American Bar Association from the SEC, does not even fit the SEC definition of a No Action letter.

--------------------------------------

So if someone believes that Romeo and Dye are accurate in their Broad Range of SEC Rule 16 b-3(d), then that person believes the requirements in SEC Rule 16 b-3(a) never applies when any purchase transaction of issuer shares is made.  

I read the Romeo and Dye Treatise and found over 100 repeated references to paragraphs 16 b-3(d) and 16 b-3(e) but there was not one reference to 16 b-3(a). Why? The answer is that they want the reader to believe that if they never mention 16 b-3(a), readers will believe that SEC Rule 16b-3 does not require a transaction between the officer or director and the issuer for an exemption.

And without the requirement of "between an issuer and the officer or director", that will open the door for greater exemptions. So that is exactly what they are doing.

It reminds me of Trump saying hundreds of times....

"There was no collusion".

 

 

John Olagues

 

 

 


Edited Sat, Nov 16, 2019 6:09 PM

Post Reply

You must be logged in and a member of this Groupsite in order to post a reply to this topic.
To post a reply, contact your group manager(s) Join this Groupsite

 

ECE - Equity Compensation Experts
Powered by Groupsite.com

Visibility Public Membership By Invitation or Approved Request Default Profile Professional

Your Status Not Logged-In