Convertible Securities and Section 16(b): The persistent Problems of Purchase, Sale, and Debts Previously Contracted

In 1934, Congress enacted section 16(b) of the Securities Exchange Act in an effort to counteract the evils flowing from speculation in corporate securities by certain persons having information regarding the corporation’s affairs or occupying positions of trust which permit manipulation of corporate policies. In general, section 16(b) permits the issuer, or one or more stockholders acting in its behalf, to recover any “short-swing” profit realized from purchases and sales (or sales and purchases) of the issuer’s equity securities within a six-month period by directors, officers, or beneficial owners of more than ten per cent of any class of equity securities. Once these statutory conditions are satisfied, it is irrelevant that the insider did not actually make use of privileged information or, indeed, that he sold his stock for the corporation’s benefit and at its request.