Tuesday, September 26, 2023
Courthouse News Service
Tuesday, September 26, 2023 | Back issues
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Companies Can Keep Short-Swing Profits

PHILADELPHIA (CN) - A pair of companies are not liable to shareholders for disgorgement of short-swing profits they received when they reclassified their stock from preferred to common, the 3rd Circuit ruled.

Shareholder Michael Levy sued Sterling Holding LLC and National Semiconductor Corp after the two companies spun off a third company, Fairchild Semiconductor, and converted preferred stock to common stock in advance of an initial public offering.

During an early phase of the trial, the 3rd Circuit ruled that a pair of SEC rules do not grant the companies an exemption from liability to its shareholders. Since then, the SEC has modified its rules, which now apply to this action.

Judge Rendell found that while Levy appealed the retroactive effects of the new rules, he did not appeal the applicability of the rules themselves.

"Thus, he has effectively conceded that if we were to conclude that either of the new rules is a permissible exercise of the SEC's authority," Rendell wrote, "we would affirm the district court's grant of summary judgment to National and Sterling."

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