No, the company does not have to pay back the profits from that second sale. The law is very specific and we have to follow it exactly as written. The rule only applies if you own more than 10% 'at the time of the sale.' When Emerson made its second sale, it owned only 9.96%, so the rule doesn't apply to that sale. It doesn't matter that Emerson planned it this way to avoid the penalty. The law is supposed to be simple and 'mechanical,' and trying to guess what a seller was thinking would make things too complicated. If the law has a loophole, it's Congress's job to fix it, not ours.

Yes, the company should have to pay. This decision destroys the whole point of the law, which is to stop insiders from taking unfair advantage of their position. The two sales were obviously part of one single plan that was made when Emerson was a big 13.2% owner. We should look at the big picture and the purpose of the law, not just use the technical wording to let people get away with exactly what the law was meant to prevent. This creates a giant, easy-to-use loophole for insiders.

No, Emerson doesn't owe Reliance profits from the second sale. The law says you have to own more than 10% of the stock both when you buy and when you sell to owe profits. Emerson owned less than 10% at the second sale. The law is strict for a reason - to stop insiders from making quick profits unfairly. It doesn't matter if Emerson sold the stock in two parts on purpose to keep some profits. What matters is they followed the technical rules.

The Court's ruling goes against the whole point of this law - to stop big shareholders from using inside information to make unfair profits. Emerson clearly planned to sell all the stock in two steps to get around the law. The Court should say the two sales count as one, and make Emerson give up all the profits. Letting them keep profits from the second sale just helps insiders cheat the system.

"[T] he only method Congress deemed effective to curb the evils of insider trading was a flat rule taking the profits out of a class of transactions in which the possibility of abuse was believed to be intolerably great."

—where alternative constructions of the terms of § 16 (b) are possible, those terms are to be given the construction that best serves the congressional purpose of curbing short-swing speculation by corporate insiders

—and it means that a sale made after a former beneficial owner of more than 10 percent has already reduced his holdings to 10 percent or below is exempted from § 16 (b) by the phrase "at the time of... sale,"

The Supreme Court has held that courts should interpret § 16 (b) strictly so as to "preserve [] its mechanical quality," calling the statute "a relatively arbitrary rule capable of easy administration."

Liability cannot be imposed simply because the investor structured his transaction with the intent of avoiding liability under § 16 (b

In interpreting the terms `purchase'and `sale,'courts have properly asked whether the particular type of transaction involved is one that gives rise to speculative abuse

In § 16 (b) Congress sought to `curb the evils of insider trading (by)... taking the profits out of a class of transactions in which the possibility of abuse was believed to be intolerably great.'... It accomplished this by defining directors, officers, and beneficial owners as those presumed to have access to inside information and enacting a flat rule that a corporation could …

Courts have therefore "been reluctant to exceed a literal, `mechanical'application of the statutory text in determining who may be subject to liability, "id., recognizing that" Congress did not reach every transaction in which an investor actually relies on inside information, "

"(Pl. Br. at 11.) Even if this were true, the Supreme Court has" recognized the arbitrary nature of section 16 (b), which is widely recognized as a `crude rule of thumb'"to curb insider trading."

No. Section 16(b) does not require the disgorgement of profits from a sale made when the seller owns less than 10% of the company's stock, regardless of the seller's intent. The statute establishes an objective, mechanical standard based on ownership status at the precise time of the transaction in question. The statutory language requiring 10% ownership 'at the time of the purchase and sale' must be read literally. A subjective inquiry into an investor's 'plan' or 'intent' to avoid liability would be contrary to the congressional design of predicating liability upon an 'objective measure of proof.' If an investor structures their transaction to be outside the literal terms of the statute, their motive for doing so is irrelevant. The Court reasoned that if this 'two-step' sale method creates a loophole, it is for Congress, not the courts, to amend the statute.

Yes. The majority's holding is a 'mutilation of the Act' that undermines its broad remedial purpose of preventing insider trading. The two sales should be viewed as a single, integrated transaction or 'plan of distribution' that was conceived when Emerson owned 13.2% of Dodge. Section 16(b) is a prophylactic rule that should be interpreted flexibly to achieve its goal, not with a rigid literalism that creates an easily exploitable loophole. The statute's definitions should be construed to effectuate congressional purpose, and allowing insiders to avoid liability by the simple expedient of splitting one sale into two is 'plainly at variance with the policy of the legislation as a whole.' The dissent proposed that any series of such sales should be subject to a rebuttable presumption that they are part of a single plan.

No, Emerson is not liable for profits from the second sale under § 16(b) because it was not a 10% owner at the time of that sale. The statute requires a 10% beneficial owner to be such "both at the time of the purchase and sale" to be liable. The legislative history and the SEC's own rules support this strict interpretation, which preserves the statute's mechanical quality and role in curbing short-swing speculation by removing the incentive for corporate insiders. Liability cannot be imposed simply because the investor structured the transaction to avoid § 16(b). The Court affirms the Court of Appeals' decision.

The Court's decision undermines the broad remedial purpose of § 16(b) by allowing insiders to easily circumvent the statute. The two sales should be treated as one because they were part of Emerson's single plan to dispose of its Dodge holdings while avoiding most of its potential liability. The statute's purpose is to prevent the unfair use of inside information by large shareholders, and the majority's literal interpretation defeats that purpose. The Court should have reversed the Court of Appeals and remanded for further proceedings.

Reliance Electric Co. v. Emerson Electric Co.

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