Does a purchase transaction between an an officer or director and the issuer mean the same as an"acquisitions from the issuer" ?

 

 

 SEC Rule 16 b-3 is Titled

 "Transaction between an issuer and its officers or directors"

Paragraph 16 b-3(d) is a condition of SEC Rule 16 b-3 and is copied below:

 

(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:

(1) The transaction is approved by the board of directors ...... 

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What does

  "Any transaction involving an acquisition from the issuer" mean?

The answer begins with what an "acquisition from the issuer" means?

All shares of issuer stock have come from the issuer. But only a very few purchases of issuer stock are purchases between the issuer and the purchaser.

For Example

If I buy some calls on Apple stock, I will receive the Apple calls in a transaction between myself and the person who wrote (i.e. shorted) the calls.

The purchase of the calls is considered a purchase of equity securities of Apple Inc and matchable for section 16 (b) purposes, against any sales of Apple equity securities within less than 6 months at a profit.

Neither the purchase of the calls or the exercise of the calls is a transaction between myself and the issuer of Apple Inc..

Is the purchase of the calls or the exercise of the calls an "acquisition from the issuer?"

The answer is that if the  "acquisition from the issuer" is defined as an "acquisition between the issuer and the purchaser", then the above described call purchase and exercise is not an acquisition from the issuer.

But if "acquisition from the issuer" is defined as any purchase  of shares of the issuer", then the call purchase and exercise is an "acquisition from the issuer". The writer of certain so called No Action Letters and the writers of a Section 16 (b) Treatise have adopted this second definition in order to expand the exemptions from section 16 (b).

 

Below is what the SEC stated in an Amicus Curiae Brief:

As stated in the SEC  Amicus Curiae Brief in Dreiling v. American Express case on Page 11 in the Ninth Circuit No. 35715. April 5, 2005.

“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 Amicus Curiae Brief, we see 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”.

 



 

 

Edited Sun, Dec 29, 2019 4:20 AM

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