This month, we discuss Gibbons v. Malone,1 in which the U.S. Court of Appeals for the Second Circuit considered a novel application of the “short-swing profit rule” of Section 16(b) of the Securities Exchange Act of 1934 (Exchange Act). The court’s opinion, written by Judge José Cabranes and joined by Judge Pierre Leval and Judge Robert Katzmann, addressed for the first time whether the short-swing profit rule applies to a corporate insider’s purchases and sales of different types of securities in the same company. Affirming the district court, the court held that such transactions would not trigger Section 16(b) liability “where those securities are separately traded, nonconvertible, and come with different voting rights.”2
Background
Over the course of 13 days in December 2008, defendant John C. Malone, a director and major shareholder of Discovery Communications Inc., made 10 purchases of Discovery’s Series A stock and nine sales of Discovery’s Series C stock. As a result of these transactions, Malone earned a profit of $313,573.
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