- Second Circuit held that “directors by deputization” - that is, shareholders who exercise the power to appoint directors to an issuer’s board of directors - are exempted under Rule 16b-3(d) from the general rule of strict liability of insiders for short swing profits under Exchange Act Section 16(b).
- Court deferred to SEC’s policy rationale for including directors by deputization in the scope of the rule. That is, court agreed with SEC that transactions between issuers and directors by deputization do not pose the danger of abuse of informational asymmetries that Section 16(b) was enacted to address, and thus the SEC appropriately exempted such transactions from liability under Section 16(b).
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