The U.S. Court of Appeals ruled this week that a company could not escape insider-trading liability for almost $5 million in short-swing profits it garnered through the conversion of notes to shares of stock and the sale within days of the conversion.
In doing so, the circuit addressed the “rarely-construed” exemption for “debt previously contracted” under §16(b) of the Exchange Act, finding that an inside investor’s exercise of a right to purchase shares in a company and its almost immediate sale of those shares made it liable for disgorgement.
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