Phillip Goldstein is the co-founder of Bulldog Investors.
If an officer, a director or a large (10% or more) shareholder of a public corporation realizes a profit from buying and selling stock within a six-month period, Section 16(b) of the Securities Exchange Act of 1934 (the “Act”) authorizes the corporation to recover from such statutory insider any so-called “short swing” profits. If the corporation fails to act, Section 16(b) authorizes any of its security holders to sue the statutory insider on its behalf to recover the profits from those trades. (In practice, anyone can qualify to sue the statutory by purchasing a single share of stock after the short swing trading has occurred.) And, because Section 16(b) is a strict liability statute, there is no need to allege the existence, let alone misuse, of inside information at the time of any trade and no equitable defenses are permitted. In their treatise on securities regulation, [1] Professors Jennings and Marsh concluded: “Judging solely from the facts stated in the opinions in the decided cases, the function of Section 16(b) would appear to be to impose unjust liability upon entirely innocent persons.”
