C.R.A. Realty Corp. v. Fremont General Corp. Lee Emerson McIntyre

C.R.A. Realty Corp. (C.R.A.) brought a stockholder’s suit for the recovery of short-swing profits under § 16(b) of the Securities Exchange Act, 15 U.S.C. § 78p(b), against Fremont General Corp. (Fremont) and Lee Emerson McIntyre (McIntyre). The precise issue before the district court was one of first impression. That court gave judgment for McIntyre. We reverse and direct that judgment be entered for the plaintiff.

FACTS

Fremont has issued 8,296,929 shares of common stock. McIntyre and his wife were co-settlors, and McIntyre the sole trustee, of an inter vivos trust of which he and his wife were joint life income beneficiaries with power to invade the corpus. As of January 1, 1991, the trust owned 1,400,000 shares of Fremont. McIntyre, therefore, was the beneficial owner of more than 10 percent of the stock of Fremont, whose securities were registered under the Securities Exchange Act of 1934, 15 U.S.C. § 781 (g). As such, McIntyre was subject to § 16(b)’s prohibition of short-swing insider trading of Fremont’s stock.

On February 18, 1988 McIntyre and his wife through the L.E. McIntyre & Co. partnership loaned their son David $2 million, in return for which David executed a…