Equity Compensation Question to the SEC on Section 16 (b) of the 1934 Act

 I wrote the following 5 Questions to the SEC 3 days ago

Dear SEC:
Section 16 b of the 1934 Securities Exchange Act has as its purpose the "preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer".

Question 1: Can the SEC pass Rules which exempt transactions from 16 (b) that are comprehended within the purpose of section 16 (b)?

Question 2: Has the SEC ever passed Rules that exempt transactions from section 16 (b), that are comprehended within the purpose of 16 (b).?


Below are quotations in letters to the SEC from the NY State BA and ABA.

The New York State Bar Association in its August 9, 2004 letter to the SEC stated the following on page 3 :

"Rule 16b-3 is entirely consistent with the intent of Congress in enacting Section 16(b), since it exempts only transactions involving parties on an equal footing from the standpoint of knowledge of inside information............................. Given these circumstances, it is irrelevant to the purposes of Section 16(b) whether the transactions covered by the Rule are compensation-related or not. What is critical is that the Rule does not present the opportunities for the misuse of inside information, which the statute is intended to prevent."

 The American Bar Association in its August 16, 2004 letter to the SEC on Page 2 said:

‘Whether the transactions are compensatory in nature should be irrelevant to the purposes of Section 16, because the key consideration of the statute is the absence of the ability to take advantage of the other party on the basis of inside information."

These two letters above were written to the SEC and endorsed by the SEC in the August 2005 SEC release.

Question 3: If an insider and the issuer both have the same inside information of future events but only the insider is allowed to use the inside information, does the insider have superior footing relative to the issuer in a transaction between the two persons?

Question 4: Would a transaction, described in question 3 above, be comprehended within the purpose of section 16 b.

Question 5. Can a withholding of shares for an unknown tax liability, 3 or 4 months prior to the income calculation and the tax liability, ever be exempted from section 16 (b)?

I will publish any answers that the SEC sends to me

John Olagues

Edited Fri, Jun 2, 2017 12:29 PM

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