Alpha Venture Capital Partners v. Nader Pourhassan

I. BACKGROUND

A. Statutory Background

Section 16(b) of the Securities Exchange Act of 1934 is meant to prevent corporate insiders (i.e., corporate executives, officers, and directors) from “exploit[ing] information not generally available to others to secure quick profits.” Kern Cnty. Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 592 (1973). In Congress’s view, short- swing transactions by corporate insiders pose an “intolerably great” risk of this type of exploitation. Dreiling v. Am. Express Co., 458 F.3d 942, 947 (9th Cir. 2006) (quoting Kern, 411 U.S. at 592). So, to prevent potential abuse by corporate insiders, Section 16(b) requires such insiders to return to the corporation any profits they realize from short- swing transactions. See 15 U.S.C. § 78p(b). Section 16(b) “imposes strict liability regardless of motive,” requiring all corporate insiders to disgorge their profits from all short-

ALPHA VENTURE CAPITAL PARTNERS V. POURHASSAN

swing transactions, even those transactions “not actually based on inside information.” Dreiling, 458 F.3d at 947.

Recognizing Section 16(b)’s broad reach, Congress authorized the Securities and Exchange Commission to issue rules…