Client Alert
| February 9, 2012
Second Circuit Affirms Disgorgement of Short-Swing Profits Made by Private Equity Funds in Board-Approved Transaction
In Huppe v. WPCS International Incorporated, decided on January 20, 2012, the Second Circuit Court of Appeals upheld a district court decision finding private equity funds liable as company insiders under Section 16(b) of the Securities Exchange Act of 1934 (“Exchange Act”) for short-swing profits realized on the sale followed by purchase within a six month period of the securities of WPCS International Incorporated (“WPCS”), a publicly traded wireless infrastructure engineering and special communications systems company. The Court held that the funds were beneficial owners of company stock even though they had delegated exclusive power to make all investment and voting decisions on behalf of the funds to two individuals, and that the transaction was not excluded from Section 16(b)’s reach even though the funds’ purchase was initiated by the company and approved by the company’s board of directors.
This memorandum is intended only as a general discussion of these issues. It is not considered to be legal advice. We would be pleased to provide additional details or advice about specific situations. For additional information on this important topic, please feel free to call upon your Dewey & LeBoeuf relationship partner. No part of this publication may be reproduced, in whole or in part, in any form, without our prior written consent.
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