Gibbons v. Malone: Second Circuit Holds Short-Swing Profit Rule Not Applicable to Separate Share Classes

In a case of first impression, the U.S. Court of Appeals for the Second Circuit upheld a District Court ruling that an insider's purchase and sale of shares of different classes of stock in the same company does not trigger liability under Section 16(b) of the Exchange Act (the "short-swing profit rule"). In Gibbons v. Malone, the Second Circuit Court held that federal securities laws do not require executives to disgorge trading profits earned from buying and selling shares of different types of stock in the same company within six months where those securities are separately traded and nonconvertible, and come with different voting rights.

See: Gibbons v. Malone (Cabinet document).