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Authors

Avi Strauss

Abstract

Section 16(b) of the Securities Exchange Act of 1934 compels an insider to disgorge short-swing profits earned from a paired purchase and sale of the issuer’s securities executed within six months. On one hand, Section 16(b)’s introductory purpose clause seems to limit the statute’s application to instances where there might be a risk of speculative abuse. On the other hand, Section 16(b) imposes a strict liability-like standard that triggers disgorgement once the statute’s objectively applied criteria are met. The circuit courts, in interpreting Kern County Land Co. v. Occidental Petroleum Corp., the seminal Supreme Court decision on the matter, are divided over whether to adopt an objective or subjective approach and, as such, how and when to apply the Supreme Court’s unorthodox transaction exemption from 16(b) liability. This Note analyzes the split and offers a critique of the Second Circuit’s pragmatic interpretation of Kern County’s ruling.

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