A United States District Court recently dismissed a claim that an insider’s election to satisfy an income tax obligation by having shares withheld from the delivery of an award constituted a non-exempt sale of shares back to the issuer for purposes of Section 16(b) of the Securities Exchange Act of 1934 ( Exchange Act), unless the share withholding was required, rather than merely permitted. While an encouraging development, this decision is now on appeal to the Fifth Circuit and there are similar unresolved complaints in other jurisdictions. Until this matter is resolved, public companies should continue to consider what steps are appropriate to avoid Section 16 exposure and to review this situation with their executive officers.
The U.S. Securities and Exchange Commission recently issued a proposed rule that would require public companies to disclose in annual proxy statements whether their employees and board members may hedge or otherwise offset any decrease in the market value of such companies’ equity securities. The proposed rule implements Section 955 of the Dodd-Frank Act and covers a broader range of transactions than typical hedging policies.
Subscribe
