Section 16 (b) of the Securities Act of 1934 and violations by executives

Section 16 b of the 1934 Securities Exchange Act has as  its purpose to prohibit the unfair use by insiders of information obtained from being an insider.

The SEC can not exempt any transaction that is "comprehended within the purpose of Section 16 (b)".

The SEC does not enforce the statute but leaves the enforcement up to the issuer or a shareholder, if the issuer does not agree to enforce a violation of section 16 (b).

Plan designers and law firms such as Skadden Arps, Baker Botts, Hogan Lovells, and Baker Mckensie, advise on the design of plans and grant agreements.

Some highly informed experts believe that these firms and others advise ways to design plans and grant agreements to allegedly exempt transactions from section 16 (b) that are "comprehended within the purpose of 16 (b)". 

Some of these designs allow insiders to trade with the issuer when the issuer must accept the insiders choice. This situation gives far greater standing to the insider than the issuer has and allows the unfair use of inside information.

Some of these designs fail to achieve the necessary approvals in order to exempt sales( i.e. dispositions to the issuer) from section 16 b), but the company attorneys claim that not withstanding what the SEC staff clearly stated, the dispositions are exempt and can not be matched with purchases within less than 6 months.

As I see it, at present there is a major effort by these and other law firms to stop the enforcement of section 16 (b) of the Securities Exchange Act of 1934 against top executives.


John Olagues



Edited Sun, May 28, 2017 4:40 PM

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