Brief Fact Summary. Respondent, Provident Securities Co., received debentures from Petitioner, Foremost-McKesson, Inc., that when converted would be greater than ten percent of Petitioner company. Respondent sought declaratory judgment to ensure that they were not liable to Petitioner for profits under Section: 16(b) of the Securities Exchange Act.
Synopsis of Rule of Law. Under Section: 16(b), the phrase “at the time of the purchase” in the exemption provision means the time right before a purchase in a purchase-sale, thus exempting a party from being liable to the company for profits realized from a sale.
By trading on this information, these persons could reap profits at the expense of less well informed investors.View Full Point of Law
Issue. The issue is whether Respondent’s immediate conversion and sale of debentures received by Petitioner made them liable under Section: 16(b) to return any profits to Petitioner.
Held. The Respondent was a beneficial owner under Section: 16(b), but they fall under the exemption which states that the section “shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the security involved.